PPF Account Rules, eligibility, and benefits you must know
A comprehensive guide to PPF account and its rules, eligibility, tax benefits, and Interest Rate for 2023.
Dear reader, you all have heard a lot about PPF and are very much familiar with the term “PPF account”. But there are so many things about PPF and PPF schemes that you might not be aware of and familiar with.
In this article, we will discuss the –
- What is a PPF account?
- How to open a PPF account?
- The PPF interest rate in 2022
- Who decides the PPF interest rate in India?
- Frequently asked questions on PPF, PPF account
- Tax benefits of investing in PPF.
- Why is PPF considered one of the most tax-efficient instruments?
So, in this post, I have taken into consideration all these points. I hope you people will find it useful.
What is PPF Scheme?
PPF stands for Public Provident Fund, which is a savings scheme initiated by the government of India. PPF accounts are available at designated post offices and banks.
The PPF is a savings-cum-tax-saving scheme, introduced by the National Savings Institute of the MoF (Ministry of Finance), Govt of India, in 1968.
The scheme is aimed at encouraging small savings among Indian citizens while offering a safe investment avenue with reasonable returns combined with income tax benefits. It is one of the most efficient tax-saving schemes in India.
Thus, the PPF scheme not only encourages people to save but also encourages them to create a corpus for their retirement.
PPF Account Rules
PPF account is opened under Public Provident Fund (PPF) Scheme 1968. People can open and deposit funds for a fixed period of time to earn interest on their savings.
PPF Interest rate is decided and announced by govt. of India periodically, usually annually. You can open a PPF account at any nationalized bank /authorized bank /post office. PPF accounts can also be opened at specific private banks.
Subscribers can invest a minimum of Rs. 500 to a maximum of Rs. 150,000 in one financial year and can get the facilities such as loans, withdrawals, and extension of account.
Eligibility for PPF account
The eligibility criteria for PPF prescribed under PPF Scheme are as follows:
- Only Resident Individuals (Indian citizens) above 18 years are eligible to open a PPF account
- Minor cannot open a PPF account
- Limit of One PPF account. Individuals can open only one account in their name. However, another account can be opened on behalf of minors for minors.
- NRIs (Non-resident Indians) are not eligible and are allowed to open a PPF account
Thus, a Body corporate, LLP, Partnership firm, HUF, and NRI are not eligible to open a PPF account.
Tenure of PPF Scheme
The original duration or tenure of PPF is 15 years. Thereafter, on application by the subscriber, it can be extended for one or more blocks of 5 years each.
PPF Deposit Limit – Yearly
A minimum yearly deposit of Rs. 500 is required to open and maintain a PPF account, and a maximum deposit of Rs.1.5 lakhs (from the financial year 2015-2016) can be made in a PPF account in any given financial year.
Note: It is to be noted that the account holder should not deposit more than Rs.1.50 lac per annum as the excess amount will neither earn any interest nor will qualify for tax deduction under Income Tax Act.
The amount can be deposited in a lump sum or in a maximum of 12 installments per year.
PPF Interest Rate 2023
As per the provisions of the scheme, subscribers earn interest income on the contributions made in the PPF account. The interest rate for PPF is fixed by the government and is subject to change every quarter.
Therefore, the government of India reviews and announces the rate of interest for the PPF account every quarter.
The PPF interest rate for the January-March 2023 quarter is 7.1% per annum.
It is worth noting that the interest rate for PPF is compounded annually, which means that the interest earned is added to the principal amount at the end of every year, leading to higher returns over the long term.
The current PPF interest rate for the 4th quarter ending March (January – March) FY 2022-23 has been fixed at 7.1%. It is compounded annually.
PPF interest Calculation
Interest is calculated on the lowest balance in your account between the 5th and the last day of every month.
So, if you people are doing monthly contributions to your PPF account. Then make sure that you deposit it on or before the 5th of every month.
That is your PPF account should be credited with the investment amount on or before the 5th of every month.
Withdrawals from PPF Account
Withdrawal from the PPF account is allowed only after the lock-in period of 15 years. You are eligible to withdraw entire contributions along with interest in the whole after its maturity period only.
However, premature withdrawals / partial withdrawals are allowed from the seventh financial year from the opening of your account.
The maximum amount that you can withdraw prematurely is equal to 50% of the amount that stood in the account at the end of 4th year preceding the year in which the amount is withdrawn or the end of the preceding year whichever is lower.
After 15 years of maturity, you can withdraw the full PPF amount. And all are tax-free, including the interest amount as well.
Loan against PPF
(Available between 3rd to 6th financial year)
You can avail of the Loan facility against the funds held in your PPF account, even before eligibility for withdrawals. Account holders (subscribers) can avail of loan facility only from the 3rd financial year to year 6.
Loans against PPF will not be permitted, once you become eligible for withdrawals
That’s why the loan facility is available till the 6th Year only as from the 7th financial year subscriber becomes eligible for partial withdrawals.
Can the PPF account have a nominee?
The facility of nomination is available in the PPF account to the subscriber. You can nominate one or more persons as nominees.
You can also define the shares of nominees. Though, the nomination of the nominee is not mandatory. But you should do it to avoid any conflict arising after the death of the subscriber.
Thus, it is very important to ensure that you have a nominee on your PPF account, who in the event of your death will receive the PPF corpus.
You can nominate one or more persons to receive the amount standing to your credit in the event of your death.
Tax Benefits of Investing in the PPF Scheme
PPF is one of the most tax-efficient instruments in India. Best savings-cum-tax-savings instrument.
Tax concession available on PPF accounts makes it a very attractive investment option for taxpayers and investors, especially for those using this scheme to build a retirement corpus.
PPF deposits fall under the EEE (Exempt, Exempt, Exempt) tax category. Contributions or deposits made under this scheme qualify for deductions under section 80C of the Income Tax Act.
Tax benefits available under PPF Scheme are as follows:
Annual Contributions made in PPF account qualify for tax deduction under section 80C of the Income Tax Act.
Tax-free Interest: Interest earned on deposits is exempt from tax.
Amounts withdrawn from the account are exempt from wealth tax.
Note: Amounts deposited in a spouse’s or child’s PPF account also qualify for a tax deduction.
Deactivation and Revival of PPF Account
PPF account gets deactivated in case of default in the contribution of the minimum investment amount.
For example – If you do not invest the minimum contribution amount of Rs.500 in any year which is required to be invested p.a as per the provision of the PPF Scheme, then your PPF account will be deactivated.
A deactivated account can be revived or activated by paying a penalty of Rs. 50 for each inactive year in addition to a minimum yearly contribution of Rs. 500 (for each inactive year).
Closure of PPF Account
PPF account is a long-term investment. There is a lock-in period of fifteen years (15).
Thus, the PPF account can’t be closed unless it completes its full tenure of 15 years.
Thus, the closure of the PPF accounts is not allowed within the lock-in period of fifteen years. But, it does not mean that there is no way for premature closure of the PPF account. Premature closure of the PPF account, in case of the sudden death of the subscriber, is possible.
Frequently Asked Questions (FAQ) on PPF and PPF account
1. Who are eligible for Public Provident Fund?
Resident Individuals, above 18 years of age are eligible to open their PPF accounts under the Public Provident Fund scheme.
Thus, a resident individual whether salaried or self-employed can open a PPF account. There is no upper age limit prescribed for opening this account.
2. Can a Minor open a PPF account?
No, a minor cannot open a PPF account. However, a guardian can open a PPF account for minors and on behalf of minors.
But, the maximum limit of Rs.1.5 lakhs per year applies to deposits made in the minor and the guardian’s accounts, collectively.
3. Can grandparents open a PPF account on behalf of the grandchild?
Grandparents cannot open a PPF account on behalf of a minor grandchild. However, in case of the death of both the parents (father and mother) of the grandchild, Grandparents can open a PPF account as guardians of the Grandchildren.
4. Can Non-resident Indians (NRIs) open a PPF account?
Non-resident Indians (NRIs) cannot open an account under the PPF scheme.
However, PPF account holders who leave the country and obtain non-resident status after having opened an account can continue to maintain their accounts until it matures i.e. until the end of the account’s 15-year term.
But, it is to be noted that, NRIs are restricted from extending account tenures at maturity.
5. Can HUF (Hindu Undivided Family) open a PPF Account?
HUFs cannot open a PPF account, effective 2005. Those accounts opened by HUFs before May 13, 2005, can be continued until maturity without further extensions.
An individual cannot open an account for a HUF (Hindu Undivided Family).
6. Can we have more than one PPF Account?
No, as per the provisions of the law, only one PPF account can be opened per person.
If at any point in time, during the tenure of PPF, it is detected that you have two PPF accounts, the second account that you have opened will be closed and the principal amount will be refunded to you without any interest.
In the end, I am herewith concluding and summarizing the key features of the PPF scheme for quick and easy reading.
Features of the PPF Scheme
- Scheme Launched by the National Savings Institute of the MoF, Govt of India, in 1968.
- Deposit Amount Limit -Minimum INR. 500/- Maximum INR. 150,000/- in a financial year.
- Deposit Frequency– Deposits can be made in lump-sum or in 12 installments maximum.
- Deposit modes – Cash/Cheque/PO/ Demand Draft/ online funds transfer.
- Scheme Tenure /Duration – The maturity period is 15 years but the same can be extended within one year of maturity for further 5 years and so on.
- Interest Rate – Interest rates are decided & announced by the government of India periodically, usually annually. At present rate of interest on a PPF account (w.e.f 01.04.2016) is 7.1% p.a. (compounded yearly)
- Nomination Facility – The nomination facility is available at the time of opening and also after the opening of the account.
- Tax Advantages – Interests earned are tax-free and deposits qualify for deduction from income under Sec. 80C of Income Tax Act. Withdrawals are exempt from wealth tax.
- Loan Facility- Loan facility against funds held in the PPF account available to the user from 3rd financial year to year 6.
- Joint Account – Joint account cannot be opened.
- Withdrawal Facility – Partial withdrawal is permissible every year but from the 7th financial year from the year of opening the account. Complete withdrawal of funds can be made only at maturity.
- Free from Attachment- PPF account is free from attachment by a court in respect of any debt or liability incurred by the subscriber (account holder) but it is subject to attachment by the order of the Income-tax authority.