Easy closure for small savings schemes likely

NEW DELHI: Subscribers of small savings schemes, including the public provident fund (PPF), may be able to close their accounts prematurely with the government looking to provide flexibility to investors to deal with financial exigencies.

The proposal, which will improve the attractiveness of such schemes that typically don’t allow easy exits, is part of a bigger recast that will bring all of them under one umbrella law as proposed in the February 1 budget. This involves putting in place the Government Savings Promotion Act and repealing the Public Provident Fund Act, 1968, the Government Savings Certificate Act, 1959, and the Government Savings Bank Act, 1873.

One of the proposed amendments empowers the government to notify norms for premature closure of small saving schemes.


The government can use the enabling provision to provide this facility to investors in the event of medical or financial emergencies.

The amended law will also allow guardians to deposit funds on behalf of minors in all schemes, a facility that existed in only some of them. Minors will also be able to nominate an heir. The proposed changes also define the rights of nominees explicitly.

“These changes are essentially aimed at removing redundant provisions and bringing parity in the norms governing all small savings schemes,” a senior finance ministry official told ET.

Some of the existing provisions related to deposits of estates of European soldiers or deserters that are no longer relevant, the official said.

“A number of definitional gaps have been addressed,” said another official, adding that certain provisions were not uniform across the existing legislation, giving rise to confusion in the minds of receiving officers and small savers.

“With one law in place, this issue will get resolved and disputes will come down,” the second official said.

In the case of the 15-year PPF scheme, the first withdrawal is allowed in the seventh year to the extent of 50% of the balance at the end of the fourth year. Premature closure is allowed after five years in some emergency situations but at a penal loss of interest. In the case of National Savings Certificates, the early encashment conditions are even more onerous.

The changes are being made in line with the recommendations of the Law Commission, which had proposed amalgamation and a single act. The government will also be able to appoint an ombudsman for the settlement of disputes related to small savings.

The government has said that these amendments will not in any way impact existing investors.

“Public Provident Fund (PPF) deposits enjoy protection from being attached,” economic affairs secretary Subhash Garg said in a tweet on Saturday. “All existing protections have been saved while consolidating PPF Act under proposed Government Savings Promotion Act. Existing and new PPF deposits would continue to have this protection.”