PPF, KVP, NSC to term deposits, small savings schemes rules may change; see how you will be affected

The finance ministry will soon come out with rules regarding the beneficiary ownership of the small savings instruments, bringing clarity on the status of the nominees in the government-run savings schemes.

The ministry is in the process of framing rules under the Government Savings Banks Act, 1873, to allow subscribers of the small savings schemes to specify in their nomination if the nominee is a trustee or a beneficiary, sources said. 

It will apply to all the government-run savings schemes, about a dozen of them, including Public Provident Fund (PPF), Senior Citizens’ Savings Scheme, Sukanya Samridhhi Account, Kisan Vikas Patra, National Savings Certificates and term deposits.

As per the proposed change, “the post offices and the banks offering the government-run small savings schemes will introduce an extra form seeking details on the status of the nominee at the time of opening of account,” said sources. The rules are likely to be implemented within next few months, latest by September.

With this, the status of the nominee will be clearly defined to bring it in conformity with an apex court judgment.

The Supreme Court in a judgment had stated “that nominee(s) is merely empowered to collect the amounts as trustee for the benefit of legal heirs.”

Meanwhile, so far as per the provisions of the Government Savings Act, 1873, if a depositor dies and nomination exists, the outstanding amount is paid to the nominee by the government. “The post offices and the banks have been paying the money to the nominee, irrespective of whether the person is a legal heir or not,” said another finance ministry official.

This was leading to a lot of litigation, particularly when the legal heir is not named as nominee. In many cases, the legal heir was a minor and couldn’t be nominated by the depositor, while no will existed.

The proposed change will clearly define the rights of the nominee.

As per the proposed rules, “if the nominee has been named a trustee, upon the demise of an account holder, he or she would receive the balance from the deceased’s account as a trustee of the legal heirs of the deceased. However, if the account holder has named the nominee as a beneficiary, the nominee will get the balance amount in the event of death of the account holder,” a source said.

“This will reframe the beneficiary ownership of the small savings instruments and reduce litigations,” says Dhirendra Kumar, chief executive officer, Value Research.

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The provisions will come into force as soon as the rules are notified under the Government Savings Banks Act which will cover all small savings schemes.

Anjul Tomar, DNA