The Finance Bill 2023 proposed amending the Government Savings Promotion Act of 1873 which covers the Public Provident Fund, Sukanya Samriddhi, Senior Citizens Savings Scheme, National Savings Certificate, Post Office Time Deposits, Kisan Vikas Patra, Post Office Monthly Income Scheme and more. The Proposed amendment will clarify who will receive money if the holder of a small savings scheme account dies without a nomination. The new amendment added another way to ensure eligibility to recieve the fund, extended the period for claiming funds with specific documentation, and increased the accountability of the authorised official in charge of handing over the funds. 

 

In accordance with current provisions of the Government Savings Promotion Act of 1873, if a depositor passes away without a nomination in place, the authorised officer is legally allowed to pay the balance deposit to any person entitled to receive the balance amount who appears before her, provided that probate of the will, letters of administration of the estate, or a succession certificate issued under the Indian Succession Act of 1925 are not produced to the authorised officer within three months of death of depositor. 

 

What the new amendment says

 

The Finance Bill 2023 has proposed an amendment to Section 4A of the Government Savings Promotion Act 1873, which states that:

 

“If a depositor dies and no nomination is in force at the time of his death, and the probate of his will or letters of administration of an estate or a succession certificate granted under the Indian Succession Act, 1925, or legal heir certificate issued by the revenue authority, not below the rank of Tahsildar having jurisdiction, is not produced within six months from the date of death of the depositor to the Authorised Officer, then, where the eligible balance does not exceed such limit as may be prescribed, the Authorised Officer may, for reasons to be recorded in writing, pay the eligible balance to the person legally entitled to receive it or to administer the estate of the deceased in accordance with such procedure and manner as may be prescribed.”

 

Key changes small savings scheme accountholders must know

 

The amendment in the Finance Bill 2023 has proposed the following three changes with respect to this issue: 

 

1. A legal heirship certificate issued by a local revenue official (not below the rank of Tahsildar) is considered as a legitimate document for the transfer of funds from the bank accounts.

 

2. The time frame for submitting the documents to the authorised officer has been extended from three months to six months.The longer time frame is an attempt to make the provision more practical for obtaining the required

documentation. 

 

3. The authorised official must now document the reasons in writing before paying the eligible balance to the person who is appearing in front of her.

 

Before this amendment, the authorised officer was not mandated to put the reasons in writing, but it is now required.

 

According to the amendment, the government will announce the cap and the eligible amount later. The term "eligible balance" instead of the deposit amount has been used to establish the requirements for transferring the funds to a person claiming the funds as the depositor's heir. The amount of interest, dividends, etc. that may be offered in a detailed savings plan would fall within the definition of "eligible balance," which has not been assigned a defined meaning.

 

Effectively, under the amended sub-section (4), if a depositor passes away without leaving a will, a letter of administration, a succession certificate, or a "legal heir certificate" issued by the Tehsildar, and if none of these documents are produced to the government savings bank within six months of the depositor's death, the government savings bank would then pay the "eligible balance" to any individual who appears to be entitled to receive or manage the estate of a decedent. 

 

Full list of schemes covered under the Government Savings Promotion Act, 1873

 

As per Schedule-I, the following government savings schemes are regulated by the Government Savings Promotion Act, of 1873:

 

a) Post Office Savings Account

b) National Savings Monthly Income (Account)

c) National Savings Recurring Deposit

d) Sukanya Samridhhi Account

e) National Savings Time Deposit (1 year, 2 years, 3 years, and 5 years)

f) Senior Citizens’ Savings Scheme

g) Savings Certificates:-

i. Kisan Vikas Patra (discontinued from 1st December, 2011 and restarted from 23rd September, 2014);

ii. National Savings Certificates (VIII Issue)

h) Public Provident Fund Scheme

 

How this move will impact depositors 

 

The government has taken a tiny but important step by accepting a legal inheritance certificate as an acceptable document for the transfer of monies held in small savings plans. This is in line with the Reserve Bank of India's (RBI) Master Direction, which instructed financial institutions to use a more straightforward procedure when repaying bank account holders' legal heirs.

 

This action will stop an undue concentration of power in the hands of the officials by establishing a process for paying over the balance in the account in the tragic event of the account holder's passing, provided that the account is neither a joint account nor has nomination capability.

 

The proposed modification has taken into account the risk management practise of specifying the parameters for using this power as well as the procedures that must be followed.

 

To find out the cap and the amount that qualifies, we must wait for the official notification. In the event that the amount is beyond the cap, it might also provide further clarity on the procedure to claim such cash.