All About Public Provident Fund (PPF) – Updated 2019 – A Popular Tax Saving Scheme

Who Can Open PPF Account?

  • Any individual in his own name or on behalf of a minor for whom he is a guardian, can open a PPF account in addition to their GPF account.
  • Only one PPF A/c can be opened in one name. Either father or mother can open a PPF account on behalf of his/ her minor child but not both.
  • The account can be opened with initial subscription of minimum Rs.100.
  • A non-resident Indian cannot open a PPF Account. W.e.f. 3.10.2017, if a resident account holder subsequently becomes non-resident, the account shall be deemed to be closed from that date, and it shall earn interest at P.O. Saving Account rate up to the last day of the month preceding the month of actual closure.
  • HUFs are not permitted to open an account w.e.f. 13.5.2015. However, accounts already open shall continue till maturity and subscriptions can be made as per the scheme. No extension shall be allowed in HUF cases.

Where to apply for PPF Account?

  • A PPF account can be opened at any authorized branch of State Bank of India.
  • Head Post Offices
  • Sub Post Offices
  • Any Public Sector Banks
  • ICICI Bank,
  • Axis Bank
  • HDFC Bank

Aadhar Number is Mandatory for PPF

  • You should furnish your Aadhaar Number or Proof of enrolment for Aadhaar, of enrolment for Aadhaar, at the time of application for PPF.
  • Existing account holders are also required to furnish their Aadhaar Number latest by 31.03.2018.

Subscription Amount for PPF

  • The amount of annual subscription for PPF account ranges from Rs. 500 to Rs.1,50,000 and is payable either in lump sum or in convenient instalments, not exceeding 12 in a year. The instalments are to be multiples of Rs. 5.
  • PPF is a 15 years scheme requiring minimum 16 contributions in all.
  • Account deposited in excess of Rs.1,50,000 in a year will not be treated as ‘subscription’ and shall be returned without any interest.
  • Although one person can have only one PPF account in his name at a time, he can contribute to the account of his children or spouse and enjoy all the tax benefits as in his own accounts.
  • The maximum limit of Rs.1,50,000 for deposits in a year shall apply to an individual’s self account and account(s) in the name of his minor child(ren), all combined. However, there will be a separate limit for an account in the name of HUF or spouse.
  • If a subscriber dies during a year, his executors cannot or deposit any sum from the income of the deceased to his PPF A/c after his death. If they do, the amount shall not earn any interest nor shall be eligible for deduction u/s 80C.
  • Subscription can be made in cash or crossed cheque or draft or pay order in favour of the Accounts Office where the account is maintained. In case of Post office working on Core Banking Solution (CBS) platform, subscription may be made by electronic mode also.
  • In case of deposit by a local cheque/demand draft, the date of realisation of cheque/ draft shall be deemed as date of deposit. In case of deposit by means of an outstation cheque, collection charges at the prescribed rate shall be payable alongwith deposit and the date of realisation of cheque shall be date of deposit.

PPF Interest Rate

The rate of interest for PPF is as follows.

  • The rate of interest at present is 7.6%.
  • Earlier, the rate of interest was 7.8% from 1.7.2017 to 31.12.2017,
  • 7.9% from 1.4.2017 to 30.06.2017, 8% from 1.10.2016 to 31.03.2017,
  • 8.1% from 1.4.2016 to 30.9.2016,
  • 8.7% during 1.4.2013 to 31.03.2016,
  • 8.8% during 1.4.2012 to 31.3.2013,
  • 8.6% during 1.12.2002 to 28.2.2003,
  • 9.5% during 1.3.2003 to 30.11.2011,
  • 9% during 1.3.2002 to 28.2.2003,
  • 9.5% during 1.3.2001 to 28.2.2002,
  • 11% during 15.1.2000 to 28.2.2001
  • 12% upto 14.1.2000.

Interest shall be payable on the lowest balance between the fifth day and the last day of every calendar month. The interest earned on the balance is compounded annually.

Nomination for PPF

Available One or more person (except a trust) may be nominated for PPF account.

Maturity of PPF Account

The entire balance of PPF can be withdrawn in full after the expiry of 15 years from the close of the financial year in which the subscription is first made.

Premature Closure

Premature closure of PPF account (including the account of a minor) may be allowed after completion of 5 financial years and on deduction of penalty of 1% from the interest as applicable from time to time, payable on the deposits from the date of opening till the date of closure, only for the purpose of:

(a) treatment of serious ailment/life threatening disease of the account holder, spouse, dependent children or parents, supported by documents from the competent medical authority, or

(b) higher education of the account holder (or minor account holder), supported by fee bills and documents of admission in a recognized institute of higher education in India or abroad.

Loan

  • The depositor can take a loan in the third financial year from the financial year in which the PPF account was opened.
  • Loan can be taken upto 25% of the amount standing at the end of the second preceding financial year. T
  • The loan shall be repayable in 36 instalments and shall bear interest at the rate of 2% [1% upto 30.11.2011].
  • Since the amount of loan is debited in the pass book, the depositor shall not earn any interest on the amount taken as loan, If the loan in not repaid in 36 instalments as aforesaid, interest @ 6% p.a. will be charged on the outstanding amount of the loan.
  • Second loan will be given only after repayment of first loan.
  • No loan can be obtained after the end of the 5th year following the expiry of the year in which the initial subscription was made. In case of death of a subscriber, the nominee/legal heir is liable to pay interest on loans availed of by the subscriber but not paid before his death.

Withdrawals

  • A subscriber is permitted to make one withdrawal every year from 7th financial year of an amount not exceeding 50 per cent of the balance to his credit at the end of the fourth year immediately preceding the year of withdrawal or at the end of the preceding year, whichever is lower, The withdrawal may be made even every year.
  • In the event of death, the amount standing to subscriber’s credit will be repaid on demand to his legal heirs or the nominee. However, the undrawn balance will continue to earn interest till the end of the month preceding the month in which the amount is paid to the nominee/legal heir.
  • Where a subscriber dies without any nomination, the scheme now permits payments of balance upto Rs. 1 lakh to the heirs on the basic of affidavits. Earlier the heirs to produce a succession certificate to get back the balance to the credit of the deceased.

Penalty for Default

  • Where no amount is deposited in PPF account in any year the same should be got regularized by depositing Rs. 500 per year along with a penalty of Rs.50 per year.

Continuity after maturity

  • At subscribers’ option the PPF account may continue for another 5 year after maturity. This facility can again be availed for a further period of 5 years on the expiry of 20 years, 25 years and so on. The option should be exercised within one year after expiry of 15 year or the extended block period by applying in Form H.
  • Subscribers who continue their account after 15 years, with fresh subscription, can make one withdrawal per year subject to the condition that the total of the withdrawal during a block period shall not exceed 60 per cent of the balance to their credit at the commencement of the extended period.
  • Subscribers who do not wish to continue the subscription after 15 years but wish to retain the balance in the account till it needed can do so without sending any formal intimation to that effect. They are also allowed the facility making the withdrawal upto 100% of the balance to their credit, in lumpsum or in instalments not exceeding one in a year till the entire balance is withdrawn.
  • The balance in the account from time to time will continue to earn interest at the prescribed rate till it is completely withdrawn. In case of withdrawals, nothing is deducted from the interest creditable to the account.

PPF Tax benefits

  • The interest earned on PPF account (including interest during the extension period) is completely exempt from income-tax u/s 10(11) and entire deposit in the account is exempt from wealth-tax.
  • The annual contribution upto Rs.1,50,000 is eligible for deduction u/s 80C. Investors can deposit Rs.1,50,000 in their PPF A/c, even if they have already paid the amount in LIC, NSC, ULIP etc. However, the deduction u/s 80C is available on the total contribution of PPF, LIC, ULIP, etc. upto a maximum of Rs.1,50,000. Deduction is also available on contributions made during the extended period provided the option to continue is exercised within one year of the expiry of 15 years (or the extended block period).
  • Interest on public provided fund is not treated as reinvestment for purpose of section 80C as it is totally tax-free and does not form part of taxable income. Deduction u/s 80C is available even if the contribution is made in the PPF account of minor/ major children or of spouse.

Note: The total of deposits made by an individual in his self-account and in the account (s) of his minor children should not exceed Rs.1,50,000 in a year.

Investors can devise a very good strategy of tax-planning through their PPF Account. After sixth year of deposit, the investors can withdraw the eligible amount, utilize it for the purposes of business/ household purpose and re-deposit an equivalent amount during the year. This will provide the advantage of reducing their tax liability, without requiring any additional cash outflow.

However, considering the tax and other benefits of PPF A/c, it is advised that you should withdraw from PPF only if you badly need the money.

3 thoughts on “All About Public Provident Fund (PPF) – Updated 2019 – A Popular Tax Saving Scheme”

  1. I am havint the PPF account for the past 20 years. my doubt is this. I am used to remit the maximum allowed amount ( rs1,50,000) every year on 2nd or 3rd April. If i am to with drawa ny money, will that quantum affect the 80-C subscription for that fiscal year.

  2. I am running PPF a/c since 19 yrs. It earns good Intt. I want to continue it but shortage of fund.
    Can I draw 1.5 lac each year and deposit 1.5 lac in the same PPF account.
    1. Will I get tax benefit from my PPF deposit?
    2. Will my PPF account will not be forcefully closed by my bank SBI? I don’t need money invested and don’t need to close it.
    Kindly help me to decide. If this is right, okay, otherwise I will decide something else.
    Bharat Banka

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