What is a PPF Account?
Dear reader, you all have heard lot about PPF and very much familiar with the term “PPF account”. But there are so many things about PPF and PPF Scheme which you might not be aware and familiar.
In this article, we are going to discuss – What is PPF account? How to open a PPF account ? PPF interest rate in 2022, Who decides PPF interest rate in India? Benefits of investing in PPF. Why PPF considered as one the most tax efficient instrument.
So, in this post, I have taken into consideration all these points. I hope you people will find it useful.
What is PPF Scheme?
The PPF is a savings-cum-tax-saving scheme in India, introduced by the National Savings Institute of the MoF (Ministry of Finance), Govt of India, in 1968.
The aim of the scheme is to mobilize small savings by offering an investment with reasonable returns combined with income tax benefits. PPF is considered as efficient tax saving scheme in India.
PPF scheme not only encourage people for savings but also encourage 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 /authorised bank /at post offices. PPF accounts can also be opened at specific private banks.
Subscribers can invest minimum Rs. 500 to maximum Rs. 150,000 in one financial year and can get the facilities such as loan, withdrawal and extension of account.
Who are eligible for Public Provident Fund?
Individuals who are residents of India are eligible to open their account under the Public Provident Fund scheme and invest.
A resident individual, who is a major i.e., above 18 years of age, whether salaried or self-employed, can open a PPF account. There is no upper age limit for opening this account.
Can a Minor open a PPF account?
No, a minor cannot open a PPF account. But accounts can be opened on behalf of minors.
Thus, a guardian’s can open a PPF account for minors and on behalf of minors. However, the maximum limit of Rs.1.5 lakhs per year applies to deposits made in the minor and the major’s/guardian’s account, collectively.
It is to be noted that, grandparents cannot open an account in the names of their minor grandchildren.
Only Resident Indians can open a PPF account
Non-resident Indians (NRIs) cannot open an account under PPF scheme. However, a 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.
Hindu Undivided Family’s (HUF) can not 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 an HUF (Hindu Undivided Family).
Can we have more than one PPF Account?
No, as per the provisions of law, only one PPF account can be opened per person.
If at any point of 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 principle amount will be refunded you without any interest.
Time Duration of PPF Scheme
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.
Deposit Limit in PPF Scheme
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 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 lump sum or in a maximum of 12 installments per year.
PPF Interest Rate
As per the provisions of scheme, subscribers earn interest income on the contributions made in PPF account.
The government of India decides and announces the rate of interest for PPF account. The interest rate for PPF is reviewed every quarter.
Current PPF interest rate for Jan 2022 – March 2022 is 7.1%. It is compounded annually.
Interest 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 contribution in 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 5th of every month.
Withdrawals from PPF Account
Withdrawal facility is available in PPF account but there is a lock-in period of 15 year and the money can be withdrawn in whole after its maturity period only.
However, premature withdrawals allowed from seventh financial year from the opening of your account.
The maximum amount that we 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, we can withdraw full PPF amount. And all is tax free, including the interest amount as well.
Loan against PPF
(Available between 3rd to 6th financial year)
You can avail the Loan facility against the funds held in your PPF account, even before eligibility for withdrawals. Account holders (subscribers) can avail loan facility only form 3rd financial year to year 6.
Note:Once you become eligible for withdrawals, no loans would be permitted.
That’s why, loan facility is available till 6th Year only as from 7th financial year subscriber becomes eligible for partial withdrawals.
Can PPF account have nominee?
Facility of nomination is available in PPF account to the subscriber. You can nominate one or more persons as nominee.
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 considered as the most tax efficient instrument in India. It is known as savings-cum-tax-savings instrument.
Tax concession available on PPF accounts makes it a very attractive investment options for tax payers and investors, especially for those using this scheme to build a retirement corpus.
PPF deposits fall under the EEE (Exempt, Exempt, Exempt) tax category. Contribution or deposits made under this scheme qualify for deductions under section 80C of 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 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 tax deduction.
Deactivation & Revival of PPF Account
PPF account gets deactivated in case of default in contribution of minimum investment amount.
For example – If you do not invest the minimum amount (i.e., Rs. 500) of contribution in any year which is required to be invested p.a as per the provision of PPF Scheme, then your PPF account will be deactivated.
Deactivated account can be revived or activated by paying a penalty of Rs. 50 for each inactive year in addition to minimum yearly contribution of Rs. 500 (for each inactive year).
Closure of PPF Account
We consider PPF account as a long term investment. There is a lock-in-period of fifteen years (15).
Thus, PPF account can’t be closed unless it completes its full tenure of 15 years.
This means that, closure of PPF account not allowed within the lock-in-period of fifteen years. But, it does not mean that, there is no way for premature closure of PPF account. Premature closure of PPF account, in case of sudden death of subscriber is possible.
Recently (18th June, 2016) government of India, issued a new notification wherein new rules & conditions for premature closure of PPF account explained.
At the end, I am herewith concluding and summarizing the key features of PPF scheme for quick and easy reading.
Features of 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 – 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 8.1% p.a. (compounded yearly)
- Nomination Facility – Nomination facility is available at the time of opening and also after opening of 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 PPF account available to 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 7th financial year from the year of opening 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.