Public Provident Fund or PPF is one of the most popular tax saving investment schemes in India, where contributions towards it is deducted from the taxable income. The interest gained on the deposits is also exempted from tax deductions.
What are the tax benefits of PPF?
Under the Section 80C of the Income Tax Act 1961, a maximum investment of Rs. 1.5 lakh per year is exempted. PPF Falls under EEE category i.e. Exempted at Investment Stage, Exempted at the stage of Interest Credited and Exempted at the time of Withdrawal. The minimum lock-in period is 15 years.. One can claim the tax benefit in spouse's and child's name as well.
Can an individual open a PPF account for children?
Yes, a PPF account can be opened for a minor by the parents or legal guardian. It can be opened in the name of the child and maintain it under the guardianship of the parents. The minimum deposit limit is Rs. 500 per year and maximum deposit limit is Rs. 1.5 lakh per year. Remember that this limit is combined for both your own account and the account where you are a guardian. In case you fail to deposit the minimum amount, then there is a penalty of Rs. 50 for each year.
What will happen to minor PPF account on maturity?
There are two scenarios:
- If the PPF matures before the child turns 18 years, then the parent/guardian either can choose to withdraw the amount or extend it for 5 years.
- If PPF matured after the child turn 18 years, then he/she will become the sole holder of the PPF account. Then, it is the child’s decision to either withdraw the amount or keep on using the account.
What is the rate of interest offered in minor PPF account?
The current rate of interest (for F.Y. 2017-18) is 7.9% for any kind of PPF account.
How is PPF calculated?
The PPF account interest is calculated annually and credited at the end of the year. The interest is calculated on the lowest account balance between 5th and the last day of the month. This means, that if your deposit on/after 5th of the month, then you don’t earn any interest for that particular month.
What to do if the PPF account has been inactive/discontinued/dormant?
In case you fail to deposit a minimum of Rs. 500 in a year, your PPF account will become inactive. In such situation, you need to do the following, in order to revive your account:
- Submit a written request at the post office or the bank where you have your PPF account.
- You will need to pay a penalty of Rs. 50 for each year when the account has been inactive.
- Contribute a minimum amount of Rs. 500 into your PPF account for each year.
- Get all the documents, signature and penalty verified by the bank/post office. Please note that the account holder should be present for verification.
Once the verification has been done successfully, your dormant PPF account will be activated.
In which banks or financial institutions, one can open a PPF account?
One can visit the nearest post office to open a PPF account by depositing Rs. 100. Other than this, here is the list of the banks which can help you open a PPF account:
- State Bank of India (and its subsidiaries)
- Allahabad Bank
- ICICI Bank
- Bank of Baroda
- Central Bank of India
- Indian Overseas Bank
- Union Bank of India
- Vijaya Bank
- UCO Bank
- Punjab National Bank
- Oriental Bank of Commerce
- Bank of Maharashtra
- Canara Bank
- IDBI Bank
- Corporation Bank
- Dena Bank
- Indian Bank
- United Bank of India
- Axis Bank
- Bank of India
In case you deposit more than 1.5 lakh in a year, then the remaining amount will not be eligible for deduction under Section 80C of the Income Tax Act. This excess amount will be returned to you by the Accounts Officer.
What are the forms involved in PPF scheme and what are their uses?
Form A – To open the PPF account
Form B – To deposit or pay money into an account. It can be monthly deposits, repayment towards the loan taken against the account or the payment of penalties.
Form C – To withdraw partial amount from the account. This can be done 7 years after opening the account.
Form D – To request for loan against your PPF account, offered from 3rd year to 6th year.
Form E – To nominate one (or more than one) nominee for your PPF account.
Form F – To cancel or make changes in nominations for the PPF account
Form G – To claim funds by the nominee, in case the account holder dies. Along with this form, the death certificate has to be enclosed.
Form H – To extend the maturity period beyond 15 years to further 5 years.