The Public Provident Fund is a
savings-cum-tax-saving instrument in India, introduced by the National Savings
Institute of the Ministry of Finance in 1968. The aim of the scheme is to
mobilize small savings by offering an investment with reasonable returns
combined with income tax benefits. The scheme is fully guaranteed by the Central
Government. Balance in PPF account is not subject to attachment under any order
or decree of court. However, Income Tax & other Government authorities can
attach the account for recovering tax dues.
Public Provident Fund Scheme, 2019 introduced by the Government on 12.12.2019 and with the new scheme the earlier Public Provident Fund Scheme, 1968 as amended from time to time is rescinded.
The public provident fund is established by the central government. One can voluntarily open an account with any nationalized bank, selected authorized private bank or post office. The account can be opened in the name of individuals including minor.
The minimum amount is Rs.500 which can be deposited.
The rate of interest at present is 7.1% per annum (as of April 2020).
Interest received is tax free.
The entire balance can be withdrawn on maturity.
he maximum amount which can be deposited every year is Rs.150,000 in an account at present.
The interest earned on the PPF subscription is compounded annually.
All the balance that accumulates over
time is exempted from wealth tax.
Individuals who are residents of India are eligible to open their account under the Public Provident Fund, and are entitled to tax-free returns.
As of August 2018, as per the Indian
Ministry of finance (Department of Economic Affairs), NRIs (Non resident
Indians) are not allowed to open new PPF accounts. However, they are allowed to
continue their existing PPF accounts up to its 15 years maturity period. An
amendment to earlier rules allowing NRIs to invest in PPF was proposed in the
finance bill 2018, but has not yet been approved.
In October 2017, a notification was passed by the Ministry of finance regarding an amendment to the PPF scheme of 1968, which would deem a PPF account closed from the day a person became a non resident. This led to much confusion. Subsequently, the ministry issued an office memorandum in February 2018 keeping the above notification in abeyance till any further order in this regard, thus bringing the situation to the same stance as earlier.
A minimum yearly deposit of Rs.500 is required to open and maintain a PPF account. A PPF account holder can deposit a maximum of Rs.1.5 lacs in his/her PPF account (including those accounts where he is the guardian) per financial year. There must be a guardian for PPF accounts opened in the name of minor children. Parents can act as guardians in such PPF accounts of minor children. Any amount deposited in excess of Rs.1.5 lacs in a financial year won't earn any interest. The amount can be deposited in lump sum or in instalments per year. However, this does not mean a single deposit once in a month.
The Ministry of Finance, Government of India announces the rate of interest for PPF account every quarter. The interest rate compounded annually and paid on 31 March every year. Interest is calculated on the lowest balance between the close of the fifth day and the last day of every month.
April 1986 - January 2000
January 2000 - February 2001
March 2001 - February 2002
March 2002 - February 2003
March 2003 - November 2011
December 2011 - March 2012
April 2012 - March 2013
April 2013 - March 2016
April 2016 - September 2016
October 2016 - March 2017
April 2017 - June 2017
2017 - December 2017
January 2018 - March 2018
April 2018 - September 2018
October 2018 - March 2019
April 2019 - June 2019
2019 - March 2020
April 2020 - September 2020
Original duration is 15 years. Thereafter,
on application by the subscriber, it can be extended for 1 or more blocks of 5
Subscriber has 3 options once the maturity
period is over.
Extend the PPF account with no
contribution :– PPF account can be extended after the completion of 15
years, subscriber doesn't need to put any amount after the maturity. This is
the default option meaning if subscriber doesn't take any action within one
year of his PPF account maturity this option activates automatically. Any
amount can be withdrawn from the PPF account if the option of extension with
no contribution is chosen. Only restriction is only one withdrawal is
permitted in a financial year. Rest of the amount keeps earning interest.
Extend the PPF account with contribution -
Loan facility available from 3rd financial
year up to 6th financial year. The rate of interest charged on loan taken by the
subscriber of a PPF account on or after 01.12.2011 shall be 2% more than the
prevailing interest on PPF. However, the rate of interest of 1% more than PPF
interest p.a. shall continue to be charged on the loans already taken or taken
up to 30.11.2013.
Public Provident Fund Scheme, 2019 has reduced the interest spread to 1 (one) percent form earlier spread of 2 percent.
Up to a maximum of 25 percent of the balance at the end of the 2nd immediately preceding year would be allowed as loan. Such withdrawals are to be repaid within 36 months.
A second loan could be availed as long as you are within the 3rd and before the 6th year, and only if the first one is fully repaid. Also note that once you become eligible for withdrawals, no loans would be permitted. Inactive accounts or discontinued accounts are not eligible for loan.
There is a lock-in period of 15 years and
the money can be withdrawn in full after its maturity period. However,
pre-mature withdrawals can be made from the start of the seventh financial year.
The maximum amount that can be withdrawn pre-maturely is equal to 50% of the
amount that stood in the account at the end of 4th year preceding year or the
end of immediately preceding year whichever is lower.
After 15 years of maturity, full PPF amount can be withdrawn and all is tax free, including the interest amount as well.
Nomination facility is available in the name of one or more persons. The shares of nominees may also be defined by the subscriber.
If any contribution of minimum amount in any year is not invested, then the account will be deactivated. To activate the bearer needs to pay Rs.50 as penalty for each inactive year. He/she also needs to deposit Rs.500 each as each inactive year's contribution.
In case death of account holder then the balance amount will be paid to his nominee or legal heir even before 15 years. Nominees or legal heirs are not eligible to continue the account of the deceased.
If balance amount in the account of a deceased is higher than Rs.150,000 then the nominee or legal heir has to prove the identity to claim the amount
The Public Provident Fund (Amendment) Scheme, 2016 made changes in Paragraph 9, for sub-rule 3(C) of Public Provident Fund Scheme, 1968 to facilitate the premature closure of PPF Account. Premature closure of PPF account is permitted after completion of 5 years for medical treatment of family members and for higher education of PPF account holder. However, premature closure comes with an interest rate penalty of 1%. As per GOI 12 DEC 2019 NOTIFICATIONS some new rules for prematurely widrawal added 1. If change in residency have to produce Visa and passport or ITR may be closed the account.2. Higher education of self or dependent on producing fee Bills or admissions confirm letter account may shut.rest rules are same as demise of holder or medical condition of self or dependent.
The account can be transferred to other branches/ other banks or Post Offices and vice versa upon request by the subscriber. The service is free of charges.
Step 1 – Approach the bank or post office branch where the PPF account is held and ask for the form for making the transfer. The bank or post office will provide you with a form which is to be filled.
Step 2 – The existing bank will then forward the certified copy of the account, the account opening application, nomination form, and specimen signature. It will also forward the cheque/dd for the outstanding amount in the PPF account to the new bank at the branch specified by the customer.
Step 3 – Once your bank receives these documents, the bank will inform you and ask you to submit a new PPF account opening form along with the old PPF passbook. You can also provide nominations for this new account. You will also be required to submit the KYC documents.
Step 4 – If you hold an internet banking facility with your bank, after a few weeks, check that the transferred PPF account now shows up under the PPF account tab/link in your login. If that is not the case, inquire the local bank branch.
Annual contributions qualify for tax deduction under Section 80C of income tax. The tax benefit is capped at Rs.1.5 lacs per financial year.
PPF falls under EEE (Exempt,Exempt,Exempt) tax basket. Contribution to PPF account is eligible for tax benefit under Section 80C of the Income Tax Act. Interest earned is exempt from income tax and maturity proceeds are also exempt from tax.
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