A PPF or Public Provident Fund is a savings scheme offered by the Government of India. The interest on the account is paid by the government of India and set every quarter. It is also tax-free. The applicable PPF interest rate for 1st July to 30th September 2019 (Q2 FY 2019-20) has been fixed at 7.9%. The interest rate for January – March and April – June 2019 was 8%.
Here is a brief PPF interest rate history :
|Quarter||Q3, FY 18-19||Q4, FY 18-19||Q1, FY 19-20||Q2, FY 19-20|
Importance of Opening a PPF Account
- The principal and interest in the PPF account are guaranteed by the Government.
- Contributions to the account up to Rs 1.5 lakh per annum are tax-free. Interest on the PPF account is also tax-free.
- Interest Rate for the PPF account is declared by the Government every quarter. PPF returns are higher than FD rates of many banks in that period.
- The PPF account is immune from attachment from any order or decree of any court under the Government Savings Banks Act, 1873.
How to open a PPF Account
PPF accounts can be opened a post office, nationalised banks and major private banks such as ICICI and Axis. In several banks like ICICI and Axis, you can open a PPF account online through net banking as well. Once the account is opened, a passbook similar to the bank passbook is issued. All transactions such as subscription, interest, withdrawals, etc. are recorded in this passbook. Some banks simply allow PPF entries to be viewed online instead of issuing a passbook.
- PPF account opening form (Form A), the same can be obtained from specified bank branches or can be downloaded online.
- ID proof
- Address proof
- Photograph of the account holder
- Nomination form
Eligibility Criteria for PPF
Any individual who is a resident of India can open a PPF account. PPF accounts can also be opened by parents for their minor children. NRIs cannot open PPF accounts. However, a resident Indian who has become an NRI after opening a PPF account can continue the account till maturity. Opening of joint accounts and multiple accounts are not allowed.
List of Banks where You can Open a PPF Account
The following banks provide the facility to open a PPF account:
|HDFC Bank||Allahabad Bank|
|ICICI Bank||Central Bank of India|
|Axis Bank||Canara Bank|
|State Bank of India||Union Bank of India|
|Bank of Baroda||Indian Bank|
|IDBI Bank||United Bank of India|
|Punjab National Bank||Dena Bank|
|Canara Bank||Vijaya Bank|
|Oriental Bank of Commerce||Bank of Maharashtra|
|Bank of India|
Do You Know?
Like PPF, investment in Equity Linked Saving Scheme (ELSS) is eligible for tax deduction under Section 80C. While PPF deposits have given a mean return at 8% in the last decade, investments in ELSS have returned between 15% to 18%. Further, the lock-in period of ELSS is 3 years while for PPF it is 15 years. If you are willing to take a moderate risk to earn higher returns, you can invest in ELSS.
Minimum and Maximum Contribution
The minimum annual contribution is Rs 500 and the maximum is capped at Rs. 1.5 lakh. The maximum limit applies to contributions made by a person for himself and for a minor child. There can be a maximum of 12 contributions in a year.
PPF is a fixed income investment. The interest rate on PPF account is notified by the central government every quarter.
Read here : PPF Interest Rates
Interest on PPF is calculated monthly on the lowest balance between the close of the fifth day and the last day of every month, i.e. for the purpose of interest calculation, the amount that is deposited into the account before 5th of the month is only considered. So if any money is deposited on 6th of a month, then no interest will be paid on that amount in the respective month. Hence it is advised that deposits should be made between 1st and 5th of the month to maximize the returns.
PPF account matures after the expiry of 15 years from the end of the financial year in which account was opened. For example, if the PPF account was opened on Jan 1, 2010, it will mature on March 31, 2025, i.e. 15 years from March 31, 2015. At maturity, you can extend the PPF account indefinitely in blocks of 5 years at a time.
Nomination Rules for PPF
Nomination can be made in favour of one or more persons. In case, more than one person is appointed as a nominee, the percentage share of each nominee also needs to be specified. Nominations cannot be made for minor’s PPF account. Anyone, i.e. parents, spouse, relatives, children, friends, etc. can be nominated. Form E is used to add a nominee to the PPF account.
Nomination can be made at any time during the tenure of account. Change, cancellation or alteration in nomination can be done through Form F. Nomination forms need to be signed by the account holder and two witnesses. Signature of the nominees is not required. The form can be submitted at the appropriate bank/post office branch.
Taxability & Exemption
Public Provident Fund falls under EEE regime of taxation, i.e. Exempt-exempt-exempt. Contribution to PPF account (up to Rs 1.5 lakh per annum) is eligible for deduction under section 80C of Income Tax Act, interest earned is exempted and maturity proceeds are also exempted from tax. The interest earned on the PPF account must be mentioned on the income tax return.
The PPF Account was earlier governed by the Public Provident Fund Act, 1968 which protected the PPF Account from attachment by any court. Budget 2018 repealed the PPF Act and brought the PPF Account under the Government Savings Banks Act, 1873. An amendment to the Finance Bill, 2018 added protection against attachment in the Government Savings Banks Act as well. The PPF Account cannot be attached under any order or decree of any court for any debt or liability under the Government Savings Banks Act, 1873. This protects account holders against all creditors, including the income tax department.
Loan Against PPF
The facility to avail loan against the PPF account is available from a 3rd financial year up to 6th financial year from the date of account opening. In another words, loan can be availed at any time after the expiry of one year from the end of the financial year in which the account was opened but before the expiry of five years from the end of the financial year in which the account was opened.
For example, if the PF account is opened on Jan 1, 2012 (FY 2011-12), the end of the financial year in which the account was opened is Mar 31, 2012. The loan can be taken from 1st April, 2013 (FY 2013 – 14) onwards. Five years from the end of the financial year in which account was opened is March 31, 2018 (FY 2017 – 18). Thus, the loan can be obtained from Mar 31, 2013 to Mar 31, 2018. The maximum tenure of such a loan is 36 months
Form D is required to be submitted to avail loan against the PPF account. Form requires details such as account number, amount being borrowed, etc along with the undertaking that the amount will be repaid with interest within three years.
The maximum amount of loan that can be availed against PPF accounts is 25% of the balance at the end of the 2nd financial year preceding the year in which the loan was applied for. In the above example, if the investor wants to take the loan in April 2013, the maximum loan that can be availed is 25% of the balance as on Mar 31, 2012.
The interest rate payable on loan taken against PPF account is 2% higher than the prevailing interest rate on PPF account. For example, if the prevailing interest rate of PPF account is 8%, then interest payable on loan taken on such account would be 10%. Prior to Nov 30, 2011, this rate was 1% higher than the prevailing interest rate on PPF account. Hence, in case of loans taken prior to the said date, the interest charged would be 1% above the prevailing rate of PPF account.
The interest is not paid with the principal amount in EMIs. Once the principal amount is fully repaid the interest has to be repaid within 2 months. In case the loan is not repaid within 36 months, interest at 6% more than the prevailing interest rate of PPF account is charged. The second loan can be obtained only after the closure of the first loan.
Revival of Inactive Account
The PPF Account becomes inactive if the minimum contribution of Rs 500 per year is not made:
- A written request to reactivate the account has to be submitted at the post office or the bank branch where the account is based
- A fine of INR 50 for each year the account has been inactive has to be paid.
- Arrears of minimum amount of INR 500 for all the years the account has been inactive have to be paid.
Transfer of PPF Account
The PPF account can be transferred from bank to post office or vice versa. It can also be transferred between different branches of the same bank.
Partial withdrawals can be made after the expiry of 5 years after the year in which the account is opened. Example, if the account was opened on Jan 1, 2012, withdrawal can be made from the financial year 2017-18 onwards. Only one partial withdrawal is allowed per financial year. The maximum amount that can be withdrawn per financial year is the lower of the following :
- 50% of the account balance as at the end of the financial year, preceding the current year, or
- 50% of the account balance as at the end of the 4th financial year, preceding the current year.
In the above example, if the partial withdrawal has to be made on April 1, 2017, the maximum amount that can be availed as loan would be lower of:
- 50% of the balance as on March 31, 2017 (current financial year is 2017 – 2018 hence financial year immediately preceding the current financial year is 2016 – 2017 which ends on March 31, 2017)
- 50% of the balance as on March 31, 2014 (current financial year is 2017 – 2018 hence 4th financial year immediately preceding the current financial year is 2013 – 2014 which ends on March 31, 2014)
Form C is required to be submitted to withdraw partial amount from the PPF account. Details such as account number, amount of money to be withdrawn, etc. is to me mentioned on the form. A declaration stating that no other amounts were withdrawn during the same financial year is also to be submitted. In case, the account is in the name of the minor, additional declaration stating that the amount is required for the use of minor child who is still a minor and is alive. Passbook is also required to be submitted along with the form.
Pre-mature closure of PPF account is not permitted within 5 years of opening the account. Thereafter it can only be closed on specific grounds such as life-threatening ailments affecting the account holder, spouse, dependent children or parents. Supporting medical documents have to be produced to support a claim on these grounds.
Death of Account Holder
In case of death of PPF account holder, the proceeds of PPF account can be claimed by the nominees/ legal heirs. The claimant should submit an application along with Form G. Form G requires information pertaining to the claim such as account number, nominee details, etc. Following documents are required to be submitted to claim the PPF account proceeds:
- In case where the account holder has made nomination
- Form G filled by all the nominees
- Death certificate of the account holder
- Passbook of the subscriber
- In case where nomination is not made by account holder and claim is supported by legal evidence
- Form G filled by legal heirs
- Death certificate of the account holder
- Succession Certificate, Letter of Administration or attested copy of the will
- Passbook of the subscriber
- In case where nomination is not made by account holder and claim amount is less than INR 1 Lakh
- Form G filled by legal heirs
- Death certificate of the account holder
- Annexure I to Form G (Letter of Indemnity) on stamped paper
- Annexure II to Form G (Affidavit) on stamped paper
- Annexure III to Form G (Letter of Disclaimer on Affidavit) on stamped paper
Maturity of PPF Account
PPF account matures after a period of 15 years from the end of the financial year in which the account was opened. At the time of maturity, the account holder has three options:
- Withdrawal of maturity amount: The account holder can withdraw the PPF amount along with the interest accrued thereon. The entire maturity proceeds are exempt from tax.
- Extension of PPF with contribution: A subscriber can extend the life of the PPF account indefinitely in blocks of 5 years at a time. The subscriber has to submit a request to extend the account, with further contributions by submitting Form H. The choice of extension with contribution has to be made within one year from the date of maturity, otherwise the default choice of extension without further contribution applies. Once the account is extend with contributions, maximum 60% of the balance as on the date of extension of the account can be withdrawn. This amount can be withdrawn in one go or can be spread over several years. A maximum of one withdrawal can be made in a year.
- Extension of PPF without further contribution: In case if no choice is made, then the default choice, .i.e. extension without further contribution applies. You do not need to fill any form to choose this option. A maximum of one withdrawal is allowed per year and any amount up to the total balance in the account can be withdrawn.
Once the PPF account is renewed with/without contribution, the option cannot be switched, i.e. from with contribution to without contribution or vice versa.
In case the amount is deposited in the PPF account without choosing the correct option, no interest will be payable on such amount. Also, no deduction under Income Tax Act will be available on such contribution.
PPF Premature Termination
- Treatment of serious ailments or life threatening diseases of the account holder, spouse or dependent children or parents
- Higher education of the account holder or the minor account holder.
Know More About EPF and PPF: Difference, Comparison, Returns & Which is Better
Q1. Is PPF good investment?
Ans. Public Provident Fund (PPF) is by far the most common voluntary tax saving option that every other salaried person opts for. It is a good option for those who wish to take up long-term investments as the lock-in period for PPF is 15 years. However, it is not the only great plan to save on taxes. There are many alternative plans and schemes, such as the ELSS, which tends to offer higher returns on investments.
Q2. How can I get maximum PPF benefit?
Ans. In order to obtain maximum PPF benefits, one should always make investments before the 5th of every month. Higher returns can be earned when lump-sum investment is made at the start of financial year i.e, before 5th April every year.
Q3. Can we invest more than 1.5 lakh in PPF?
Ans. More than 1.5 lakh can be invested in the PPF account in a particular year but no interest or tax benefit will be earned on the excess amount. This is because, according to Section 80 C, total tax deduction per financial year is 1.5 lakh only.
Q4. Can I withdraw PPF after 5 years?
Ans. In 2016, the Government amended PPF scheme and propagated some positive changes regarding the withdrawal of balance from the account. You can now withdraw the whole amount and close your PPF after 5-years.
Q5. Can a person have 2 PPF accounts?
Ans. No, one person cannot have 2 PPF accounts. However, a family is eligible to have multiple PPF accounts. For Example: one account for father, one for wife and so on.
Q6. Can I withdraw my PPF before maturity?
Ans. The amount in PPF account can be withdrawn only at the time of maturity. However, earlier the PPF maturity was locked for 15 years. But, now the balance of PPF account can be withdrawn on completion of 5-years.