PPF Account Explained: Who Can Invest, How to Open, and More

Nowadays, everybody’s talking about financial security and how to save on taxes, right? The PPF comes into play here. There are a lot of people in India who are interested in it. What’s the reason? As an investment, it can also help you save on taxes, making it a win-win situation. The National Savings Institute of the Ministry of Finance introduced this in 1968. PPF is safe, pays good interest rates, and offers tax benefits. You can diversify your investments by investing in it. Here’s a guide to help you get the most out of this long-term investment. We will discuss everything PPF – who can invest, how to open an account, how much you can put in, how and when you can withdraw money, and even how to take a loan.

Quick Summary of PPF Account

The following table provides a concise summary of key aspects related to the Public Provident Fund (PPF) account, a long-term savings option offered by the Indian Government. It highlights essential information such as eligibility criteria, where to open an account, minimum initial subscription, contribution limits, interest rates, maturity period, premature closure options, loans against PPF, and tax benefits associated with the account.

Aspect	Summary
What is PPF Account?	Long-term savings option offered by the Indian Government, providing safety, attractive interest rates, and tax benefits.
Eligibility Criteria	Open to individuals, legal guardians of minors, but not available for NRIs and HUFs.
Where to Open	Banks (public and private sector), post offices, and online platforms.
Minimum Initial Subscription	Rs. 500
Contribution Limit	Annual subscription ranges from Rs. 500 to Rs. 1,50,000.
Interest Rates	Government-set rates, currently at 7.1%.
Maturity Period	15 years; account can be extended for an additional five years.
Premature Closure	Possible after five financial years with a penalty of 1% on accrued interest.
Loan Against PPF	Loans can be availed from the third financial year, up to 25% of the balance.
Tax Benefits	Exemption from income tax on interest earned, wealth tax exemption, and deductions under Section 80C.

What is PPF Account?

A Public Provident Fund (PPF) account is a long-term savings option offered by the Indian Government, which offers safety with attractive interest rate and returns that are fully exempted from Tax. People use it not only as an effective savings tool but also as an excellent tax-saving mechanism. The PPF scheme aims to mobilize small savings by offering an investment with reasonable returns combined with income tax benefits. The interest rate is set by the government each quarter.

A PPF account has a maturity period of 15 years, which means you cannot withdraw the full amount before this period. However, after seven years, partial withdrawal is possible. You can also extend the account for another five years after it reaches maturity.

It’s like a safe box for your money that pays you interest and also helps you lower your tax burden. It’s a great tool to include in your long-term financial planning.

Eligibility Criteria for Opening a PPF Account

Anyone, yes anyone, can open a PPF account in their own name. You can also open a PPF account for a minor or someone who, unfortunately, isn’t mentally sound, provided you’re their legal guardian.

Just remember, you can only have one PPF account in your name. Parents can also open an account for their minor children, but both parents can’t open separate accounts for the same child – it’s either mom or dad, not both.

Also, it’s important to note that Non-Resident Indians (NRIs) are not allowed to open a new PPF account. There’s a catch though – if you opened your PPF account while you were a resident and then your status changes to NRI, you can continue your account until it matures but you can’t extend it further.

And in case you’re wondering, Hindu Undivided Families (HUFs) can’t open a new PPF account either. If they had one before May 13, 2015, they can continue to use it till it matures but they can’t extend it.

So in essence, it’s an accessible saving and investment option for most people residing in India, but not for NRIs or HUFs. All you need to kick things off is a minimum initial subscription of Rs.500!

Who Can Not Open a PPF Account?

Let’s dive into the specifics about who, unfortunately, cannot open a PPF account. The scheme has some exclusions that we must bear in mind, and they primarily affect two groups: Non-Resident Indians (NRIs) and Hindu Undivided Families (HUFs).

Non-Resident Indians (NRIs): Firstly, if you’re an NRI, the Public Provident Fund doesn’t feature in your list of investment options. This stipulation started making its presence felt from October 3, 2017. But what happens if you already had a PPF account before becoming an NRI? The rule, my friend, is pretty straightforward: the day you change your status to non-resident, your PPF account is deemed closed. From that day forward, your account will accrue interest at the Post Office Savings Account rate until the last day of the month preceding the actual closure month.

Hindu Undivided Families (HUFs): Now, moving on to HUFs, Hindu Undivided Families (HUFs) can’t open a new PPF account either. This rule came into being on May 13, 2015. However, if you were an early bird and opened a HUF account before that date, you’re in luck. You can continue to keep that account active until its maturity, making subscriptions as per the norms of the scheme.

Where to Open PPF Account?

It is very easy to open a PPF account in India. The following places offer this service, based on your convenience:

1. Banks: There are many public and private sector banks in India that offer PPF accounts. A few examples are the State Bank of India (SBI), Punjab National Bank (PNB), ICICI Bank, and HDFC Bank. You don’t necessarily have to have an existing account with the bank to open a PPF account.

• All public sector banks
• ICICI bank
• Axis Bank
• HDFC Bank

2. Post Offices: PPF accounts can also be opened at the post offices. They can assist you in opening a PPF account. You can check the official website of Post office here.

3. Online: Many banks now allow you to open your PPF account online if you’re all about digital life. A bank typically offers this service to its existing customers. PPF accounts can be opened online through the bank’s Internet banking or mobile banking app.

You should always ensure that the institution where you open your PPF account is authorized by the government to do so.

Aadhaar Number Required to Open PPF

Aadhaar is required to open a Public Provident Fund (PPF) account in India. It has become a requirement for most financial transactions, including PPFs. It is because it is a unique ID for each citizen and helps streamline the identification process, as well as preventing people from opening multiple accounts – which is a big no-no. Aadhaar cards, PAN cards, proofs of address, and recent passport photos should all be in your document stack before opening a PPF account.

PPF Subscriptions Rules

While PPF offers great investment benefits, it also comes with a set of rules and guidelines on contributions, limits, and how these relate to your account and those of your family members. In this section, we’ll outline the key aspects to be aware of when making subscriptions to a PPF account, including the duration of the scheme, contribution amounts, maximum limits, contributions in the event of a subscriber’s death, and acceptable modes of payment. Let’s break down these elements to make managing your PPF account as seamless as possible.

PPF Contributions: PPF, or Public Provident Fund, is a financial scheme that spans 15 years and mandates at least 16 contributions overall.

PPF Contribution Range and Frequency: The annual subscription amount for a PPF account ranges from a minimal Rs. 500 to a maximum of Rs. 1,50,000. This subscription can be made in one lump sum or through convenient installments throughout the year, as long as these do not exceed 12 instalments in total. All instalments should be in multiples of Rs. 50.

Maximum Limit and Excess Deposit: Take note that any amount deposited beyond Rs. 1,50,000 within a year won’t be considered as a subscription. Instead, it will be returned to the subscriber without any accrued interest.

Contribution to Family Members’ Accounts: The unique aspect of PPF is that while one person can only hold one account in their name, they can still contribute to the accounts of their spouse or children. This contribution comes with the bonus of enjoying the same tax benefits as they would in their own account. However, the maximum annual limit of Rs. 1,50,000 applies collectively to an individual’s self account and accounts in the name of his minor children.

Subscription After Subscriber’s Death: In the unfortunate event of a subscriber’s death, their executors cannot deposit any sum from the income of the deceased into their PPF account. Any such deposited amount will not earn any interest and won’t be eligible for tax deduction under Section 80C.

Modes of Subscription: Subscriptions to PPF can be made in various ways: cash, crossed cheque, draft, or pay order in favour of the accounts office where the account is maintained. For post offices operating on a core banking solutions platform, subscriptions may also be made via electronic mode.

PPF Interest Rates

Public Provident Fund (PPF) historical interest rates are necessary to understand investments in PPF. As the economy has changed over the years, these rates, set by the Indian government, have fluctuated as well. Below is a chart of the interest rates offered on PPFs from the earliest records to the present.

PPF Interest Rates (Historical Chart) 

Period	Interest Rate
At present	7.1%
1.7.2019 – 31.3.2020	7.9%
1.10.2018 – 30.6.2019	8%
1.1.2018 – 30.9.2018	7.6%
1.7.2017 – 31.12.2017	7.8%
1.4.2017 – 30.6.2017	7.9%
1.10.2016 – 31.3.2017	8%
1.4.2016 – 30.9.2016	8.1%
1.4.2013 – 31.3.2016	8.7%
1.4.2012 – 31.3.2013	8.8%
1.12.2011 – 31.3.2012	8.6%
1.3.2003 – 30.11.2011	8%
1.3.2002 – 28.2.2003	9%
1.3.2001 – 28.2.2002	9.5%
15.1.2000 – 28.2.2001	11%
Up to 14.1.2000	12%

PPF Interest Calculation and Payment

When it comes to earning interest on your PPF account, there’s a specific rule to note. Interest is calculated on the minimum balance in your account between the 5th day and the end of each month. So, if you’re planning to make a deposit, it’s best to do so before the 5th day to maximize your interest earnings. Also, keep in mind that while the interest is calculated monthly, it’s credited to your account only at the end of each financial year.

PPF Nomination

Public Provident Fund account holders can nominate one or more individuals to their accounts. However, nominations cannot be made in favor of a trust.

Upon your death, the funds in your account can be directly transferred to the person or persons you have named. This step ensures your investments won’t be lost in probate or legal proceedings, and can quickly reach your intended beneficiaries.

Nominations can be made when the account is opened, or at any time thereafter, prior to maturity. A nomination must be made at the time of opening the account to avoid any future legal complications.

Those who open accounts on behalf of minors should also know that they can only nominate themselves if they are minors.

PPF Maturity

Investing in the Public Provident Fund (PPF) requires patience. You must understand the maturity policy of your PPF investment to get a high investment return. PPFs have a 15-year maturity period. It means 15 years from the end of the financial year during which you made your first subscription, not 15 years from the date you opened the account.

For example, if you open your account and make your first deposit in February 2023, your maturity date won’t be February 2038. A full 15-year financial cycle would be completed in March 2039.

After the account matures, you can withdraw the entire balance, including interest earned. You can use this money for retirement, property purchases, funding higher education, or any other significant financial goal that you have.

Premature Closure of PPF Account

The Public Provident Fund (PPF) is designed as a long-term savings scheme, but life can sometimes throw unexpected challenges our way. Recognizing this, the PPF allows for premature closure of accounts under certain circumstances, after completion of 5 financial years.

However, this facility isn’t offered lightly. A penalty of 1% will be deducted from the interest that has been accrued on your deposits from the time of opening till the date of closure. So, it’s clear that early withdrawal is not the most beneficial move if you can avoid it.

The reasons for premature closure are strictly defined, focusing on crucial life events:

1. Medical Emergencies: If the account holder, their spouse, dependent children, or parents are facing serious ailments or life-threatening diseases, the account can be closed prematurely. In this case, you’d need to present supporting documents from a competent medical authority to justify the early withdrawal.

2. Higher Education: Premature closure is also allowed if the funds are to be used for the account holder’s higher education (or that of a minor account holder). You’ll need to provide evidence in the form of fee bills or admission documents from a recognized higher education institute, whether in India or abroad.

3. Premature Closure due to Change in Residency Status: Another condition that allows for premature closure of a PPF account is a change in the residency status of the account holder. If you, as the PPF account holder, become a non-resident Indian (NRI) after the opening of the account, you may opt for a premature closure of the account. The change in residency status is a valid reason for seeking an early exit from the scheme.

Taking a Loan Against Your PPF Account

One of the significant benefits of the Public Provident Fund (PPF) is the provision to avail a loan against your PPF account. Let’s delve into how this process works and the conditions involved:

1. When Can You Take a Loan? You become eligible for a loan in the third financial year from the year in which the PPF account was first opened. So, for instance, if you opened your account in the financial year 2020-21, you could avail a loan starting from the financial year 2023-24.

2. Loan Limit: The loan amount cannot exceed 25% of the balance in your account at the end of the second financial year preceding the year in which the loan is applied for.

3. Repayment and Interest Rate: The loan needs to be repaid in 36 installments and bears an interest of 2% (1% up to 30th November 2011). If the loan is not repaid within 36 installments, a higher interest rate of 6% per annum will be charged on the outstanding loan amount.

4. No Interest Earnings on Loan Amount: Since the loan amount is recorded as a debit in the passbook, you will not earn any interest on the amount taken as a loan.

5. Subsequent Loans: A second loan can only be availed after the full repayment of the first loan.

6. Loan Availability Period: Loans cannot be obtained after the end of the 5th year following the year in which the initial subscription was made.

7. Death of a Subscriber: In case of the death of a subscriber, the nominee or legal heir is responsible for repaying any outstanding loans taken by the subscriber, along with the due interest.

Consequences of Default in PPF Account

PPF (Public Provident Fund) is all about consistency. If, for some reason, you haven’t been able to deposit any money in a particular year, it’s essential to understand the consequences and what steps you need to take to re-establish your account.

1. Penalty Imposed: You will be penalized if you do not deposit money into your PPF account in any given year. A deposit of Rs. 500 is required for each year.

2. Additional Fee: An annual penalty fee of Rs. 50 is charged for each year you miss.

Contributing regularly to your PPF account would be best to avoid such penalties. A PPF account’s maximum benefits can only be reaped if you invest steadily and consistently over time.

PPF Calculator: PPF Maturity Value Calculation

Tax Benefits Associated with a PPF Account

A Public Provident Fund (PPF) account offers significant tax advantages.

Income Tax Exemption: According to Section 10(11) of the Income Tax Act, the interest earned on your PPF account, including any interest accumulated during extension periods, is entirely exempt from income tax. The interest you earn on your PPF investments is tax-free.

Wealth Tax Exemption: You are exempt from wealth tax on your PPF balance. For those with large PPF balances, this can be a substantial benefit.

Section 80C deductions: Section 80C of the Income Tax Act allows deductions for PPF contributions up to a limit of Rs. 1,50,000 per year. It does not matter if you have already invested in other tax-saving instruments, such as Life Insurance Corporation (LIC) policies, National Savings Certificates (NSCs), or Unit-Linked Insurance Plans (ULIPs).

However, it is essential to note that the total deduction under Section 80C, which includes PPF, LICs, ULIPS, etc., is capped at Rs. 1,50,000.

You can also deduct contributions made during extended periods if you continue the account within one year of the 15-year expiration.

Tax Benefits on Contributions for Others: The deductions under Section 80C are available even when contributions are made to the PPF accounts of minors, children, or spouses. As a result, you can enjoy tax benefits while investing in your loved ones’ future.

Conclusion: A PPF account can be a powerful tax-saving instrument and a safe and reliable way to save for the future.