PPF - Public Provident Fund

The Public Provident Fund (PPF) scheme is a very popular long-term savings scheme in India because of its combination of tax savings, returns, and safety.

PPF Information

PPF scheme was launched in 1968 by the Finance Ministry’s National Savings Institute. The main objective of PPF scheme is to help individuals make small savings and provide returns on the savings. The PPF scheme offers an attractive rate of interest and no tax is required to be paid on the returns that are generated from the interest rates.

For more information, Check out related articles PPF Account Online, PPF Interest Rate, PPF Rules & PPF Withdrawal

Eligibility to open a PPF account

The eligibility criteria to open a PPF account are mentioned below:

• Indian citizens are eligible to open a PPF account.
• An individual can open only one account under his/her name. However, another account can be opened by the individual on behalf of a minor.
• Non-resident Indians (NRIs) and Hindu Undivided Families (HUFs) are not allowed to open a PPF account.

How to open a PPF account?

Individuals can open a PPF account at banks or at post offices. Earlier, opening a PPF account was allowed only at Nationalised Banks, however, private banks such as Axis, HDFC, and ICICI Bank also offer the PPF scheme. The documents required to open a PPF account is mentioned below:

• The application form must be submitted.
• ID proof such as Aadhaar card, Permanent Account Number (PAN) card, passport, etc., must be submitted.
• Address proof with the current address mentioned on it should be submitted.
• Signature proof.

After submission of the above documents, the amount that is required to open a PPF account can be deposited.

Features of a PPF account

The main features of the PPF account are mentioned below:

• Duration of the account: The minimum duration of a PPF account is 15 years. However, account holders can extend the duration of the account by a block of 5 years.
• Amount required to open a PPF account: The amount that is required to open a PPF account is Rs.100. In a year, if the annual investment that is made towards the account exceeds Rs.1.5 lakh, no interest will be earned on the excess amount, and no tax deductions can be claimed as well.
• Deposit modes: PPF Payments towards the account can be made in the form of PF transferonline, Demand Draft, cheque, or cash.
• Number of accounts that can be opened: An individual can open only one PPF account under his/her name. Under the PPF scheme, joint accounts cannot be opened.
• Minimum and maximum amount: The minimum and maximum investment that can be made in a financial year are Rs.500 and Rs.1.5 lakh, respectively. PPF Investments can be paid in a lump sum or in instalments. The maximum number of instalments that are allowed is 12.
• Frequency of deposits: Deposits must be made at least once a year for 15 years.
• Safety of opening a PPF account: A PPF account offers risk-free, guaranteed returns, and capital protection as it is backed by the Government of India. Therefore, opening a PPF account comes with minimal risks.
• Loans against a PPF account: Between the third and fifth financial year from the date of opening the PPF account, PPF loans can be availed against the account. The amount that can be availed as a loan is 25% of the investments that have been made at the end of the second financial year. Individuals can also avail a loan after the sixth financial year as well. However, the first loan must be completely paid before availing a second loan.

PPF Interest Rate

Currently, PPF interest rate has been reduced from 7.9% to 7.1% and it is compounded on an annual basis. The interest is paid on March 31 and the PPF interest rate is set by the Finance Ministry on a yearly basis. The calculation of interest is based on the minimum balance that is available between the close of the fifth day and the last day of the month.

PPF Tax benefits

Investments that are made under a PPF account come under the Exempt-Exempt-Exempt (EEE) category. Therefore, under Section 80C of the Income Tax Act, all deposits made towards a PPF account are tax exempt. The amount that has been saved as well as the interest that has been generated are also exempt from tax when the individual withdraws the amount from the PPF account.

Premature closure of a PPF

After completion of 5 years is it possible for individuals to opt for premature closure. However, premature closure is allowed in case of treat diseases that can cause harm to the life to the life of the PPF account holder, parents, children, or spouse. For which, documents from an accomplished medical authority must be submitted.

Premature closure is allowed in case of higher studies of the minor account holder or for the account holder as well. However, documents such as fee bill and the admission confirmation from a recognised university in India or abroad must be submitted.

Attachment of a PPF account

Debtors will not be able to access the PPF account of the individual to claim their dues as the PPF account cannot be attached by a court. However, this rule does not apply to income tax authorities. Therefore, if the account holder has any dues pending, the PPF account can be attached for the payment of dues.

PPF Withdrawal

Individuals can close the PPF account only after the completion of the 15 years. Once the 15 years is completed, the account holder can withdraw the entire amount that has been saved in the account as well as the interest that has been generated.

However, in case the account holders need funds, partial withdrawal of funds is available after completion of 6 years of opening the account. The account holder can withdraw 50% of the funds that are available after the fourth year in case of PPF premature withdrawal. It can either be at the end of the preceding year or the year before which the amount is withdrawn, whichever is lower. However, account holders are allowed to make withdrawals only once a year.

FAQ's on PPF

1. Can I increase my investment under the PPF scheme by opening 2 or more accounts in my name?

   No. Under the Public Provident Fund Scheme, a person can hold and operate only one account in his/her name.

2. Can I continue to use an inactive account?

   Yes. You can do so by paying the holding branch a penalty of Rs.50 for every year the account was inactive. You will also have to deposit a minimum of Rs.500 for every year the account was inactive as well as Rs.500 for the year you are activating the account.

3. Will I continue to earn returns if my account is inactive?

   No. Interest will not be calculated for the year(s) the account is inactive. Once the account is revived, interest will be calculated on the balance held at time of revival.

4. If I open a PPF account in my minor child’s name, can I claim tax deductions from both accounts i.e. my child’s and mine, when I file taxes?

   The maximum investment cap of Rs.1.5 lakhs applies to all contributions you make to your account, your minor child’s account and/or your spouse’s account, collectively. Only amounts up to Rs.1.5 lakhs can be claimed as deduction U/S 80C of the Income Tax Act. For e.g. if you contribute Rs.1 lakh toward your account and Rs.1 lakh toward your child’s account, you can claim only Rs.1.5 lakhs as deduction and not Rs.2 lakhs.

5. What if I wish to invest more money than the Rs.1.5 lakh limit?

   Interest will be calculated and paid out only on amounts up to Rs.1.5 lakhs for any year. Only the maximum annual investment limit i.e. Rs.1.5 lakhs a year will be considered towards all PPF calculations for all purposes.

6. The limit was raised from Rs.1 lakh to Rs. 1.5 lakh mid-way through 2014. If the limit is raised this year in the same way, how will I make the additional deposit? Should I wait for next year?

   When the limit is raised during a financial year, banks and post offices are instructed to accept additional investments if investors wish to contribute up to the revised maximum limit. This is what was done last year for those who wished to contribute up to Rs.1.5 lakhs under the revised limit.

7. How is interest calculated? I got interest for 11 months instead of 12 months for the last year.

   For any given month, investments made on or before the 5th will be considered for interest calculations for that month. Interest is calculated on the lower of the balance held on the 5th of a month to the end of the month.

   For e.g. An account held Rs.1 lakh at the start of September. The account holder decided to invest Rs.50,000. He did so on September 10th. In this case, the balance on the 5th of September was Rs.1 lakh and was Rs.1.5 lakhs at month-end. Here, Rs.1 lakh is the amount that will be considered for calculation of interest. The additional investment of Rs.50,000 would be considered for the month of October.

   If, however, the account holder had deposited the additional Rs.50,000 on September 3rd, the balance on the 5th of September would have been Rs.1.5 lakhs. This would have been the amount considered for interest calculations for the month of September.

8. I want to leave some money to my grandchild. Can I open the PPF account on her behalf?

   No. Grandparents cannot open PPF accounts in their grandchildren’s names. The amount can be given to the parent/guardian who can open and operate the account in the name of their minor child/ward. However, if both parents of the minor child die, the grandparents, as guardians, can open and operate a PPF account for the minor child.

9. Is it mandatory to withdraw all the money in my PF account at the end of 15 years?

   No. It is not necessary to redeem all the funds held in the account at maturity. The account term can be continued or extended for as long as the investor wishes to operate it. The account can be continued for 5 years per extension. Extensions can be done by depositing fresh funds or without making any further deposits.

10. Will I continue to earn interest on my account if I extend the maturity period beyond 15 years?

    Yes. Interest will be calculated and paid out based on the interest rates prevailing during the period of extension. If no fresh deposits are made during the period of extension, interest will be calculated based on the balance held at the end of the 15th year. If fresh deposits are made to extend the term, it will be added to the balance at the end of the 15th year and the total amount will be treated as principal for interest calculations.

11. Can I extend my account for 2 years on maturity?

    Extensions can be made in blocks of 5 years each.

12. What happens to the money in my account if I die before maturity?

    It can be claimed by the nominees or the legal heirs in the absence of nominees. If a nominee was named by the account holder, he/she will receive the entire amount held in the account. If more than one nominee was named, the nominees will receive funds held in the account proportionately i.e. as stated by the account holder in the nomination form.

13. Is it necessary to name nominees?

    It is not mandatory to name nominees for a PPF account. However, it is advisable to do so to avoid conflicts in the event of death and to have a clear transfer of funds to a desired person.

14. How can a nominee/legal heir claim funds in a PPF account?

    Nominees or legal heirs can claim funds in a PPF account when the account holder has passed away. They will be required to produce proof of death of the account holder. Nominees can claim funds in the proportion stated by the account holder in the nomination form.

15. How long can I extend my account for?

    PPF accounts have a maturity period of 15 years. However, this can be extended for as long as the account holder wishes to continue it. Extensions can be done for 5 years at a time. For e.g. if an account matures on March 31st 2015, it can be extended till March 31st 2020. The next extension will be until March 31st 2025 and so on.

16. I deposited money in my wife’s PPF account. Who can avail the tax deduction?

    In this case it will be you who will be able to avail the PPF tax deduction. The person making the contribution is eligible for tax deductions U/S 80C.

17. I deposited money in my parents’ PPF accounts but did not qualify for tax deduction U/S 80C. Why?

    Only contributions made to an account holder’s own account, his/her spouse’s account or his/her minor child’s account can be claimed as deductions U/S 80C of the Income Tax Act. The total contribution to any one or all of the abovementioned person’s account is subject to the investment cap of Rs.1.5 lakhs per annum.

18. If I withdraw money from my PPF account, can I redeposit it to meet the minimum annual investment requirement?

    Yes, you can withdraw money for personal purposes. It can be used to invest the Rs.500 required as annual investment.

19. Can I open a PPF account along with my wife or child?

    No. The option to hold PPF accounts jointly is not provided under the PPF scheme. A person can hold and operate only one account in his/her own name.

20. If I need money, can I make withdrawals in addition to taking out a loan against my PPF account?

    No, withdrawals and loans are exclusive of each other as per the rules of operating a PPF account. Loan facilities are extended to account holders only between the 3rd and 6th year of operating an active account whereas partial withdrawals are allowed from the 7th year onwards. This means you cannot avail a loan from the 7th year onwards nor can you make withdrawals before the 6th year.

    This scheme was devised to promote savings and while loans and withdrawals are allowed to a certain extent to allow for some liquidity, the scheme, in general, does not aim to encourage a reduction in savings potential.