Introduction
A PPF account or Public Provident Fund account is a Savings-cum-tax-saving instrument in India, which was introduced in 1968 by National Savings Institute of Ministry of Finance (Central Government).
Since its introduction PPF Account has been one of the most favourite entities to invest for the people who are seeking a long term and stable returns.
PPF Account falls under the EEE (Exempt, Exempt, Exempt) category of Taxation in India. This means that during investment it will be liable for tax benefit u/s 80c, the interest earned will be exempted from income tax, and during maturity it is totally tax-free.
Eligibility
Any individual, who is a resident of India can open a PPF Account and will be entitled to tax-free returns.
NRIs (Non-resident Indians) are not allowed to open a fresh PPF Account. However, they can maintain a previously opened PPF account.
Deposits
To maintain a PPF Account one has to deposit at least Rs.500 every year. The maximum amount that can be deposited in a PPF Account is Rs. 1.5 lakhs in a financial year.
However, one can deposit more than 1.5 lakhs in a financial year, but that amount will not earn any interest. So, it is useless to do.
The deposits can be made in one time or in 12 monthly instalments.
(NOTE: Always deposit the money in PPF Account on or before 5th day of the month. If not done so, your money will not earn any interest for that month.
This is a very small thing to consider, but this can affect your final returns significantly.)
Interest Rates
The interest rate that is being given on the deposits in PPF Account is very satisfying (as there is almost no risk because this program is backed up by the Government of India).
The rate of interest that is being given, is to be decided by the Central Government of India before every quarter. The Interest rate that was given on PPF Account in recent years is listed below.
Financial Year | Time Period | PPF Interest Rate (Per Annum) |
2020-21 | July 2020 – September 2020 | 7.10% |
2020-21 | April 2020 – June 2020 | 7.10% |
2019-20 | January 2020 – March 2020 | 7.90% |
2019-20 | October 2019 – December 2019 | 7.90% |
2019-20 | July 2019 – September 2019 | 7.90% |
2019-20 | April 2019 – June 2019 | 8.00% |
2018-19 | January 2019 – March 2019 | 8.00% |
2018-19 | October 2018 – December 2018 | 8.00% |
2018-19 | July 2018 – September 2018 | 7.60% |
2018-19 | April 2018 – June 2018 | 7.60% |
2017-18 | January 2018 – March 2018 | 7.60% |
2017-18 | October 2017 – December 2017 | 7.80% |
2017-18 | July 2017 – September 2017 | 7.80% |
2017-18 | April 2017 – June 2017 | 7.90% |
2016-17 | January 2017 – March 2017 | 8.00% |
2016-17 | October 2016 – December 2016 | 8.00% |
2016-17 | July 2016 – September 2016 | 8.10% |
2016-17 | April 2016 – June 2016 | 8.10% |
2015-16 | April 2015 – March 2016 | 8.70% |
2014-15 | April 2014 – March 2015 | 8.70% |
2013-14 | April 2013 – March 2014 | 8.70% |
2012-13 | January 2013 – March 2013 | 8.80% |
2011-12 & 2012-13 | December 2011 – December 2012 | 8.60% |
| March 2003 – November 2011 | 8.00% |
2001-02 & 2002-03 | March 2002 – February 2003 | 9.00% |
2000-01 & 2001-02 | March 2001 – February 2002 | 9.50% |
1999-00 & 2000-01 | 15th January 2000 – February 2001 | 11.00% |
| April 1986 – 14th January 2000 | 12.00% |
From the previous data of interest rates, it is clear that the interest rate is nearly same (in many cases more) as that of a fixed deposit in major banks of India.
Interest rate is to be compounded annually and the interest on the PPF Account is to be paid on 31st March every year.
Interest is to be calculated on the lowest balance between the 5th day and the last day of each month. So, always deposit the money in your PPF Account on or before 5th day of each month.
Tax Implications
The investment done in a PPF Account has an enormous amount of benefits for taxation in India.
Basically, PPF Account falls under the category of EEE i.e., exempt, exempt and exempt.
The first exempt is for the tax benefit u/s 80c. This means that the investment done up to Rs. 1.5 lakhs in PPF Account in a financial year is eligible for deduction u/s 80c of Income Tax Act.
The second exempt is on the interest earned on the investment in a PPF Account. In simple terms, the interest earned on investments in PPF Account will not be considered for Income Tax.
The third and last exempt is for the maturity proceedings. The maturity proceedings are completely free from tax.
However, an individual will have to mention the interest earned in PPF Account while filing Income Tax return.
Attachment Immunity
One of the most important reason why everyone should invest in PPF Account is its wonderful attachment immunity.
For instance, let us suppose there is a person called Mr X. He invests regularly in PPF Account, Mutual Funds, Stocks, FDs and in Real Estate.
For some reason Mr X has taken a personal loan which he defaulted. Now, for the sake of loan recovery from Mr X, the bank with an order from the court, can sell all his investments in Mutual Funds, Stocks, FDs and Real Estate too.
But the bank can’t attach Mr X’s investments in PPF account for the recovery of credit provided to him.
Earlier PPF Account was governed by the Public Provident Fund Act, 1968, which protected it from the attachment by any court.
There was an amendment in the finance bill in 2018, which provided protection against the attachment in the Government Savings Bank Act as well.
Now the PPF Account cannot be attached under any order or decree of any court for the debt and liability, under Government Savings Bank Act, 1873. PPF account is protected from all the creditors, including the Income Tax Department.
Loan against PPF
PPF Account holders are eligible to get a loan against the deposit made by them in PPF Account. However, the loan can be applied only from 3rd financial year up to 6th financial year.
For Example, if the PPF Account was opened on 1st September 2000, the end of the financial year in which account was opened is 31st March 2001.
Now the loan can be taken from 1st April 2002 (3rd financial year starts on 1st April 2002) up to 31st March 2006 (end of 6thfinancial year). The tenure of such loans is 36 months maximum.
A second loan can also be availed only after the payment of the previous loan.
The maximum amount of loan that can be availed by an investor is 25% of the total amount that was available at the end of the 2nd preceding financial year in which the loan was applied for.
In the above example, if the investor applies for a loan in April 2005, the maximum loan that can be availed to him is 25% of the balance on 31st March 2004. But if he applies for a loan in March 2005, the maximum loan that can be availed to him is 25% of the balance on 31st March 2003.
Eligibility for Loans against PPF Account
Loan against PPF Account is available only from 3rd financial year to 6thfinancial year.
In the above-mentioned period, everyone is eligible for the first loan against PPF Account deposit except for the account holders of inactive or discontinued PPF Accounts.
Second loan is also available in the above-mentioned period provided that the previous loan cleared.
Interest Rates on Loan
As per 2019, the interest rate on the loan taken against the deposit in PPF Account is 1% more than that of the prevailing interest rate on PPF Account.
If the loan was to be taken in March 2020 and the prevailing interest rate on PPF Account is 7.1% then the interest rate charged on the loans will be 8.1%.
Earlier this interest rate was 2% more than that of prevailing interest rate on PPF Account. So, if the loan was to be taken in December 2018, the interest rate on the loan would have been 9.1% (considering the prevailing interest rate on PPF Account at 7.1%).
But one thing that everyone must have to consider that this loan is to be paid back within 36 months. If anyone fails to do so the interest rate to be charged on loan will be 6% more than that of the prevailing interest rate on PPF Account.
How and where to open a PPF Account?
A PPF Account can be opened in both online and offline modes for an individual provided that he or she satisfies the eligibility criteria for opening a PPF Account.
PPF account can be opened at post offices, nationalized banks and many private sector banks like Axis Bank, ICICI Bank etc.
The following is alist of banks where PPF Account can be opened:-
For offline mode of opening a PPF Account, one will have to visit the bank.
Opening of a PPF Account can be done online by visiting the online portal of the chosen bank.
Documents Required to Open a PPF Account
The following is a list of the documents required for opening a PPF Account:-
· PPF Account opening form that can be obtained from the specified bank branch or can be downloaded online.
· KYC documents verifying the identity of the individual such as Aadhar card, Driving Licence etc.
· PAN Card.
· Address Proof.
· Passport Size Photograph.
· Form for nominee declaration.
Nomination
There are some specific rules and regulations for nomination in PPF Account.
· One or more than one person can be registered as a Nominee in a PPF Account. However, in case of more than one nominee, the share of each nominee must be specified.
· No nomination can be made in minor’s PPF Account.
· Spouse, Parents, Children, relatives, friends etc. can be nominated for PPF Account.
· Nomination can be made at any time and alteration in a nominee is also possible in PPF Account.
Account Tenure
The tenure of a PPF account is 15 years i.e., your money will be locked in for a period of 15 years from the last day of the month in which the account was opened.
Tenure Extension
The tenure of the PPF Account can be extended for 1 or more blocks of 5 years each.
Default and Reactivation
It is mandatory to deposit at least Rs. 500 in PPF Account in every financial year. If someone fails to do so, PPF Account becomes inactive.
During the period of inactivity, no interest will be credited in the PPF Account.
For the reactivation of inactive PPF Account, one may have to visit the bank or post office along with an application for reactivation of PPF Account.
Along with that, individual will have to pay Rs. 50 as fine for each deactivated year. Rs. 500 for each deactivated year is also to be paid as the minimum deposit of PPF Account.
For example, if a PPF Account was deactivated from last 3 financial year.
Then a fine of Rs. 150 (Rs. 50 for each deactivated financial year) is to be paid for reactivation. Along with that Rs. 1500 (Rs. 500 as each year’s contribution towards PPF Account) is also to be paid.
So, for the reactivation of the PPF Account after 3 financial years of deactivation Rs. 1650 is to be paid.
PPF Account Transfer
A PPF Account can be transferred from one bank to another bank or post office. The account can also be transferred from one branch to another branch within the same bank or the post office.
The service is completely free of cost.
Withdrawal
Pre-mature withdrawal is also available in PPF Account from 5th year.
The maximum amount that can be withdrawn is 50% of the total amount that stood in the PPF Account at the end of 4th preceding financial year or the end of immediately preceding financial year, whichever is lower.
Pre-mature withdrawal facility can be availed in a PPF Account for a single time in a financial year.
Maturity
At the time of maturity, there are three options available for a PPF Account holder. The options are listed below: -
· Complete Withdrawal.
· Extend the PPF Account with no contribution.
· Extend the PPF Account with contribution.
Complete Withdrawal
Investor can withdraw the total matured amount after 15 years of deposit.
For this an investor may have to visit the bank (or post office) or can be done online through the bank’s portal.
Extend the PPF Account with no contribution
This is the default option and will be automatically activated when no action is being taken by the PPF Account holder within a period of 1 year from the date of maturity.
Now within the extended period, the investor can withdraw 60% of the total amount in PPF Account that was available at the time of extension.
However, only one withdrawal per financial is allowed.
Extend the PPF Account with contribution
The extension of the PPF Account with contribution is also available with the investor. However, only one withdrawal is available per financial year.
For this extension the investor will have to submit Form H to the branch where his account is being operated.
Now within the extended period, the investor can withdraw 60% of the total amount in PPF Account that was available at the time of an extension.
However, only one withdrawal per financial is allowed.
Pre-mature Closure
After 2016, pre-mature closure of PPF Account is also being facilitated.
This can be done only after 5 years of completion of opening of PPF Account and only for treatment of family members or for the higher education of family members.
(Note: Here family members include self, spouse and children)
However, the facility of pre-mature closure of PPF Account comes with a penalty of 1% in interest rate.
Death of account holder
In the case of the death of the PPF Account holder, the amount will be paid to the nominee or the legal heir even before the completion of 15 years.
However, nominee or the legal heir has to prove his/her identity if the balance in the account is more than Rs. 1,50,000.
Nominees are not allowed to continue the account of the deceased.
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