PPF(Public Provident Fund): A Complete Guide
Public Provident Fund Scheme i.e. PPF came into inception in 1968, introduced by Ministry of Finance. It was initially launched to provide retirement safety to the self-employed people and the people working in the unorganised sector. However, as the time progressed, PPF has become the favorite choice for many investors.
Public Provident Fund(PPF) is a safe instrument as it is backed by the government and it helps people build their retirement corpus over a longer tenure. With a longer tenure and benefits such as tax-free returns, capital protection, PPF is a preferred asset that can be part of one’s debt portfolio.
Let us go through the features of Public Provident Fund in detail:
A PPF account has a tenure of 15 years. The tenure starts from April 1st i.e. the beginning of any financial year. In other words, we can say that the period from April 1st till March 31st is considered to be the deposit year for a PPF account. Let me explain this with an illustration:
Suppose Mr. Anil opened the PPF account on Oct 31st 2010, or any time between April 1st 2010 to March 31st 2011, then the actual tenure for maturity will start from April 1st 2011 i.e. the year starting from April 1st 2011 will be considered as the first year and the maturity date of the PPF account will be April 1st 2026.
Minimum & Maximum Amount
An individual can open a PPF account with a minimum deposit of Rs. 100. However, in a financial year, the minimum amount to be deposited in the PPF account is Rs. 500.
The maximum amount to be deposited in a PPF account is Rs. 1,50,000 in a financial year.
Public Provident Fund(PPF) interest rate is decided by the government of India and is linked to the 10-year government bond yield. The PPF interest rate for the 1st quarter of the fiscal year 2016-17 is 8.1% per annum effective from April 1st 2016 and for the 2nd quarter of the fiscal year 2016-17 effective from October 1st 2016 it has been lowered to 8% p.a.
Public Provident Fund(PPF) comes under EEE tax structure i.e. Exempt-Exempt-Exempt, which means that the amount invested during the tenure, interest earned during the tenure and the maturity amount are all tax-free. Also, you can claim up to Rs. 1,50,000 in a financial year under section 80C of the IT Act, 1961.
Eligibility to open the account
• Indian Residents can open the PPF account. An individual can open only one account under his/her name.
• Parents can open PPF account for their kids. However, the account will be in the name of the minor and the maximum limit of Rs. 1,50,000 in a financial year is applicable for the deposits made in minor’s and parent account together.
• Non-Resident Indians (NRI) cannot open the PPF account. However, a person who becomes an NRI during the tenure of the PPF account shall continue making deposits in the account till the maturity of the account i.e. 15 years. Such an account is not eligible for further extension.
• As of May 13th 2015, Hindu Undivided Families (HUF) cannot open the PPF account. Accounts which were opened before this date may continue to be operational till the maturity without any further extensions.
• Foreigners are not eligible to open a PPF account.
• Grand father/ mother cannot open a PPF account for their minor grand son/daughter.
Also read: Choosing between PPF, NPS and ELSS
Documents required to open a PPF account are listed below:
• PAN card copy
• Address proof- Electricity bill/ Driver’s license/ Passport
• Passport size photograph
• Duly filled PPF account opening form (Form A)
Deposit Frequency in a financial year
Deposits can be made in a PPF account in multiples of Rs. 500 either as a lumpsum or in installments, not more than 12 installments in a financial year or 2 installments in a month subject to total deposit of Rs. 1,50,000 in a financial year.
More than one nominee can be added at the time of account opening or any time later. However, the account holder has to specify the percentage of funds to be claimed by the nominee in case of the unfortunate death of the account holder. The account holder can change or remove the nominee any time later.
No nominations are allowed for a minor’s account.
Money can be deposited in the Public Provident Fund (PPF) account through cash or cheque mode. In case of cheque, deposit in the account is made on the date of clearance of the cheque and not on the cheque deposit date.
There is no provision of joint accounts.
Partial withdrawals under the Public Provident Fund(PPF) account is permitted starting from the 7th financial year of the account opening. Single partial withdrawal is allowed in a year. However, these withdrawals are subject to T&C. Complete withdrawal from a PPF account is only allowed at the time of maturity.
On the other hand, PPF accounts cannot be closed before the maturity period apart from certain special cases. In case of the uncertain death of the account holder, their nominee/legal heir can close the account after submitting the required documents as per the Ministry of Finance. Also, premature closure is now permitted in cases such as serious ailment and higher education of children. However, there is a penalty of 1% of the interest earned on the deposits for premature closure (this does not apply in the case of death of the account holder).
Note: On June 18th, 2016, Ministry of Finance had published a notice making an amendment in the Public Provident Fund Scheme, 1968. This amendment is with respect to the rules associated with the withdrawal policy of PPF corpus. As per the new scheme, a subscriber shall be allowed premature closure of his/her account or the account of a minor for which he/she is the guardian.
Penalty, Deactivation and Reactivation
There is a penalty of Rs. 50 for non-deposit of minimum amount i.e. Rs. 500 in a financial year. If the minimum amount required to be deposited in the financial year is not deposited, then the account will be marked as de-active.
To re-activate the account, one has to pay a penalty of Rs. 50 per year for the number of years the account was de-active. One also has to pay at least the minimum amount of Rs. 500 per year for the years the account has not been maintained. There will not be any interest paid for the years in which account was inactive. Loan or withdrawal facility is not available for the inactive accounts.
PPF account can be extended further in a block of 5 years after the end of the initial tenure of 15 years with or without any deposit in the account.
Where can the account be open?
You can open a PPF account at any authorised post-office, selected branches of any authorised nationalised bank including few private sector banks. Some of the banks provide the facility of opening a PPF account online subject to the terms & conditions.
PPF account can be transferred from one authorised bank or post office to another and also from a bank to post office & vice-versa. However, the transfer of account from one person to another is not permitted.
What if the account holder dies?
Nominee/legal heir on the account can claim the amount if the account holder dies. However, they have to prove their identity along with submitting the death certificate of the account holder at the time of the claim. Nominee/legal heir cannot continue the account and the account has to be closed.
Options available at the time of maturity
There are 3 options available for the account holder at maturity of the account:
1. You can withdraw the entire amount invested along with the interest earned on your investment and close the account.
2. You can extend your PPF account further for a block of 5 years without making any contributions. The accumulated amount will continue to earn yearly interest. Also, there is no limit to withdraw the amount you wish to, subject to one withdrawal in a year. Also, the remaining amount in the account after the withdrawal will continue to earn interest until it is withdrawn. You have to submit the application to extend your account before the completion of 1 year from the time of maturity of the account. If it is not done, then this option will be automatically activated on the account.
3. You can also extend the account for a block of 5 years and continue making fresh investments in the account. However, in this case you will be allowed to withdraw 60% of the balance amount available at the beginning of the extension year.
The balance in a PPF account cannot be attached to any claim in case of debt or liability. Thus, the money is your’s irrespective of any circumstances.
Loans can be availed against the funds deposited in the PPF account from the 3rd to the 6th financial year from the account opening date.