Pay no taxes, yet earn higher interest on your girl child’s investment! Here is how

Currently, the Sukanya Samridhi Yojana (SSY) scheme is solely meant for daughters, where parents begin minimum investment every month starting from early age of the girl child. When we talk about investment in general, the most common would definitely be fixed deposits, as either be senior citizen, father, mother or children, FDs are available for everyone. However, particularly for girl child, the SSY seems to be the real winner. Among many advantages of SSY is that, a parent has to make a little investment per month in this scheme, earn hefty interest rates and can withdraw proceeds when the girl arrives at 21 years of age. But, this is not just the only benefit SSY offers. Let’s find out! Why SSY is better investment for girl child than traditional FDs. 

SSY:

One of the key highlights of the Sukanya Samriddhi Yojana is that, a parent can begin an investment at minimum Rs 1000 and maximum Rs 1.5 lakh every year.

The scheme is highly secured with a guaranteed return and a maturity period which is generally kept at 21 years of age. This means all a parent has to do is begin saving from early age of the girl child, and can remove the amount just in time of her maturity in life which is 21 years of age.

As the scheme promises to provide a better future for the girl child, it has to be completely tax-free. The principal amount invested in this scheme is deductible under Section 80C of the Income Tax Act. Up to Rs 1.5 lakh is deductible under section 80C.

Not only this, no taxes are levied on interest earned throughout the investment period as well as the final maturity amount received once the account is closed. With that investment in SSY, leads to triple tax benefits.

Currently, from October 2018, the interest rate for the Sukanya Samriddhi Yojana account is set at 8.5%.

Because, the interest rate is compounded yearly, this scheme has turned out to be best interest rate provided in comparison to other savings schemes. It’s like a bonus, as the scheme not only provides security to the girl child but also offers a high rate of interest and tax exemption too.

FDs: 

Investment in FDs can also be opened at minimum Rs 1,000 with maximum amount of Rs 1.5 lakh in a year. Minimum tenure in this scheme is 7 days, while maximum 10 years. 

Banks FD interest rates varies from lowest 3.50% to a little over 8% on general category. Hence, SSY gives more interest returns. 

Unlike SSY, interest income on FDs are subject to taxes. A TDS of 10% or Rs 10,000 whichever is lower, gets deducted on interest income from FDs. However, if a depositor does not furnish details of their Permanent Account Number (PAN), then the TDS rate would rise to 20%. 

In the interim Budget 2019, the government has proposed to increase the FD TDS limit from Rs 10,000 to Rs 40,000. It will be keenly watched to what will Finance Minister Nirmala Sitharaman's stance would be on FDs. 

However, tax benefit of up to Rs 1.5 lakh under section 80C of Income Tax Act is also available on FDs. 

That said, if any early investment goals you have for your girl child, then you might want to compare SSY with FDs before making decision.