public provident fund

public provident fund

PPF or Public Provident Fund is a savings scheme offered by the Government of India.  Which was introduced by the National Savings Institute of the Ministry of Finance in 1968.  The interest on PPF account is paid by the Government of India and is fixed every quarter.  It is also tax-free under section 80C.  Currently the PPF interest rate for 1st April to 30th June 2020 (Q1 FY 2020-21) has been fixed at 7.1%.  The PPF interest rate for January - March 2020 (Q4 FY 2019-20) was 7.9%.

Salient Features of PPF Account :

The principal and interest in the PPF account is guaranteed by the government.

Contribution to the account up to Rs 1.5 lakh per annum is tax free.  Interest on PPF account is also tax-free.

The interest rate for PPF account is announced by the government every quarter.  PPF returns are higher than the FD rates of many banks in that period.

Any Indian citizen can open PPF account.

There is no upper age restriction for opening a PPF account.

PPF account can be opened in post office and branches of all government and major banks.

Being a government savings scheme, investment security is fully guaranteed by the Government of India.

Children's account can also be opened under the guardianship of the guardian.  A child above 10 years of age can also open it independently.

This account can be opened with an initial deposit of at least ₹ 500/-.  And it is mandatory to deposit at least ₹ 500 / - in this account every year, otherwise there may be a penalty of ₹ 50 / - per year.

Up to a maximum of ₹1.5 lakh can be deposited in each financial year.  And there is an exemption to deposit money up to a maximum of 12 times every year, which can be deposited more or less at any time according to their convenience.

There is also the facility of depositing money in this account through NEFT / RTGS and net banking.

Deposit, interest and withdrawal of PPF account are exempted from tax on all three.  Partial withdrawal amount after 5 years is also completely tax free.

A good interest rate is available on the amount deposited in the PPF account. The same interest rate is given everywhere in the post office and banks.

The facility of taking loan against the deposit amount is also available from the third year of the PPF account. There is also a facility to close the account in emergency after 5 years of account opening.

After the completion of 15 years of the PPF account, the entire amount along with interest is paid.  Even after the maturity of the account, its period can be extended for the next five-five years.

There is also a facility to create a nominee in the PPF account.

You can transfer PPF account anytime to your nearest post office or bank branch as per the requirement.

Eligibility for PPF 

Any person 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.  Joint accounts and opening of multiple accounts are not allowed.

Interest on PPF Account 

PPF is a fixed income investment.  The interest rate on PPF account is notified by the central government every quarter.  Interest on PPF is calculated on the minimum balance between the end of the fifth day of the month and the last day of every month.  Presently the interest rate of PPF account is 7.9% (as on July19-Sept19).

Tenure of PPF Account :

PPF account matures after the expiry of 15 years from the financial year in which the account was opened.  For example, if the PPF account was opened on 1st February 2005, it will mature for 15 years on 31st March 2020 i.e. from 31st March 2005.  On maturity, you can extend the PPF account indefinitely in blocks of 5 years.

Nomination Rules for PPF Account

Nomination in PPF account can be done in favor of one or more persons.  It also needs to specify the percentage share of each nominee.  Anyone, i.e. parent, spouse, relative, child, friend etc. can be nominated.  Form E is used to add the nominee to the PPF account.

Nomination can be done at any time during the tenure of the PPF account.  Nomination can be changed, canceled or changed through Form F.

Tax exemption in PPF account

Contribution to PPF account (up to Rs 1.5 lakh per annum) is exempted under section 80C of the Income Tax Act, interest earned is exempted and maturity proceeds are also exempted from tax.  The interest earned on the PPF account has to be mentioned on the income tax return.

Attachment order protection

The PPF account cannot be attached under any order or judgment of any court for any debt or liability under the Government Savings Bank Act, 1873.  It protects the account holders against all the creditors including the Income Tax Department.

 Loan Against PPF Account 

The facility of availing loan against PPF account is available from 3rd financial year till 6th financial year from the date of account opening.  In other words, the loan can be availed at any time after the end 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 PPF account is opened on February 1, 2014 (Financial Year 2013-14), then the end of the financial year in which the account was opened is March 31, 2014.  The loan can then be availed from April 1, 2015 and availed for the next five years i.e. March 31, 2019 (FY 2018-19) from the end of the financial year of opening the loan account.

The maximum tenure of this type of loan is 3 years.  The maximum loan amount for PPF accounts is 25% of the balance at the end of the previous financial year in which the loan was applied for.  For example, if the investor wants to take a loan in April 2014, then the maximum loan that can be availed will be 25% of the balance as on March 31, 2013.  Form D is required to be submitted to take loan against PPF account.

The interest rate payable on loan taken against PPF account is 2% higher than the prevailing interest rate on PPF account.

To reactivate inactive account

If the minimum contribution of ₹ 500/- per year to the PPF account is not made, the account becomes inactive.

An application has to be submitted to the post office or bank branch for revival of the account.

For every year the account becomes inoperative, a penalty of ₹ 50/- has to be paid.  And a minimum amount of ₹ 500/- has to be paid for all the years following the financial year of the account becoming inactive.

Partial withdrawal from PPF account

Partial withdrawals can be made after the expiry of 5 years of the year in which the account is opened.  For example, if the account was opened on January 1, 2014, withdrawals can be made from the financial year 2021-22.  Only one partial withdrawal is allowed per financial year.  The maximum amount that can be withdrawn per financial year is 50% of the account balance before the current year, till the end of the financial year, or 50% of the account balance up to the end of the fourth financial year, before the current year.  Form C is required to be submitted for partial withdrawal from PPF account.

In case of premature closure of PPF account:

Premature closure of PPF account is not allowed within 5 years of account opening.  After that it can be closed only on specific grounds, such as serious illness of the account holder, spouse, dependent children or parents, in which there is a danger to life.  But to prove these grounds, you must have the necessary medical documents.

In case of death of the account holder

In case of death of the PPF account holder, the nominee/legal heir to the PPF account can claim the income from the PPF account by producing the death certificate of the account holder.  Along with this, the claimant has to submit Form G and an application form containing the information related to the claim like account number, nominee details etc.

Maturity of PPF Account

PPF account matures after a period of 15 years from the end of the financial year opening the account. At the time of maturity, the account holder has the following options:-

Withdrawal of maturity amount -

The account holder can withdraw the PPF amount as well as the interest earned.  Entire maturity is exempt from income tax.

Extension of PPF with contribution-

A subscriber can extend the PPF account indefinitely in a block of 5 years at a time.  The account holder has to apply for extension of account with further contribution by submitting Form H.  Once the account is extended with contributions, a maximum of 60% of the balance amount can be withdrawn as on the date of extension of the account.  This amount can be withdrawn in one go or it can be withdrawn over several years.  Withdrawals can be made maximum once in a year.

Forms to be used in PPF account