The Public Provident Fund (PPF) is the darling of all tax saving investments. No wonder! You invest in it and you get a deduction on your income. Besides, the interest you earn on it is tax-free. Since it is a scheme run by the Government of India, it is also totally safe. You can be sure no one is going to run away with your money. Herein below, we have summarised the features of scheme for you:-
1.Where to Open a PPF account?: A PPF account can be opened at any SBI Branch or at any Branch of its subsidiary bank. You can also visit any nationalised bank in your neighbourhood or head post office or selection grade sub-post offices to open a PPF account.
2. Forms to be filled:- One needs to fill an account opening form and attach therewith a photograph and photo copy of PAN Card. If one does not have a PAN Card, then one can furnish an attested copy of the ration card, voter’s identity card or passport.
3. Limit on No. of accounts:- One Person can have only one PPF account in their name. If, at any point of time, it is detected that one has more than one PPF account, then the another account opened will be closed, and you will be refunded only the principal amount, not the interest.
4. Only Individual can Open PPF Account – Only an Individual can open a PPF account on or after May 13, 2005 and account opened by a person other than Individual on or after May 13, 2005 will be treated as invalid and the depositor will not be entitled to any interest.
In respect of account opened by a person other than Individual prior to 13th May 2005 the account shall continue till maturity but no extension will be granted.
5. Account by a Non Resident:- Non Resident Indians are not eligible to open a PPF account. However if a resident who subsequently becomes a Non Resident Indian during the prevalence of the maturity period prescribed under PPF Scheme, may continue to subscribe to the Fund till its maturity on a Non Repatriation Basis.
6. Joint PPF Account:- You cannot open a joint account with another individual. The account can only be opened in name of one person.
7. Account in name of a Minor:- Either father or mother can open a PPF account in the name of his /her minor child but not both.
8. Limit of subscription:- Any individual may, on his own behalf or on behalf of a minor of whom he is the guardian, deposit in a PPF account any amount not less than Rs. 500/- and not more than Rs. 1,00,000/- in a year .
9. Number of subscription: The subscription, which shall be in multiples of Rs. 5 may, for any year, be paid into the account in one lump sum or installments not exceeding twelve in a year.
10. Date of deposit for Interest Purpose w.e.f. 29.03.2010 in case of Cheque Payments will be the date of realization of the amount, earlier the date of deposit of Cheque was considered for Interest Purpose.
This issue becomes particularly relevant in respect of deposits made towards the end of the financial year by cheque / demand draft because if the same is not realised by March 31, then the same will be treated as deposits for the following financial year and deduction u/s. 80C will not be allowed.
For Example : Let’s say you have issued a Cheque on 29.03.2012 to deposit Rs. 20,000/- in PPF but Cheque is cleared and amount is realised on 01.04.2012.Then deposit date will be considered 01.04.2012 not 29.03.2012 and accordingly the tax deduction under 80C will be available in Financial Year 2012-13 instead of Financial Year 2011-12.
11 Rate of Interest: – The current rate of interest is 8% till 30.11.2011 , 8.60 % from 01.12.2011 to 31.03.2012 and 8.80% from 01.04.2012, which is compounded annually. Interest earned in PPF account will be totally exempt from Income Tax under section 10(11).
12. Duration: – The PPF account is valid for a period of 15 years. The entire balance can be withdrawn on maturity, that is, after 15 years from the end of the financial year in which you had opened the account. So, if you had opened an PPF Account in the Financial Year 2011-12,you will be able to withdraw it 15 years later, starting March 31, 2012. That means your PPF matures on April 1, 2027. It can be extended for a period of five years after that. During these five years, you earn the rate of interest and can also make fresh deposits. Once your account expires, you can open a new one. The only limitation is that you cannot withdraw it until seven years are completed, after which 50% of your deposits can be withdrawn, if needed.
13. Nomination and continuation of account after death:- PPF account holder can nominate one or more individuals. If there are no nominees, the legal heirs get the money. On the death of the account holder, nominees/legal heirs cannot keep the account going by making contributions.
14. Tax relief on Investment:- Deposits on Public Provident Fund account qualify for tax deduction under Section 80C of Income Tax Act, 1961 subject to maximum limit of Rs. 1,00,000/-.
15. Tax Relief under Direct Tax Code: Government has continued the tax exemption available under the Income Tax Act, 1961 in Direct Tax Code. Amount received on Maturity of PPF account will also continue to remain exempt.
Frequently Asked Questions
Q. Can the PPF account be attached by Tax Authorities?
A. Yes, the PPF account can be attached by the Income Tax and Estate Duty authorities. The PPF act only gives the account holder immunity against attachment under a decree / order of a court of law.
Q. Can I open an account in the name of a minor?
A. Certainly. Under the Public Provident Fund Scheme, an individual may open one Public Provident Fund account on behalf of a minor child of whom he is the guardian. It may be reiterated that only one account may be opened in one name. Thus, if a guardian opens an account on behalf of a minor child, another guardian cannot open an account on behalf of the same minor child.
Q. Is the benefit of Tax Deduction under section 80C of the Income Tax Act available to a spouse when he or she contributes to the Public Provident Fund account maintained by the other?
A. Permissible! The benefit under Section 80C is admissible to both, a husband contributing to the wife’s account and the wife contributing to the husband’s account. However, there is one condition; the contributions should be made out of the contributor’s taxable income.
Q. For how many years can a PPF account be extended after the initial 15 years of operating a PPF account?
A. After the PPF account has been in operation for 15 years, it can be extended for a further duration of five years.
Q. In the event of the death of the minor subscriber is the balance in the account payable to the guardian?
A. No, the guardian is not entitled to the payment of the balance. The balance in such cases is payable to the legal heirs of the minor, in accordance with Section 8 of Public Provident Fund Act and para 12(6)(ii) of the Public Provident Fund Scheme.
Q. What is the procedure for transfer of a PPF account from one branch of a bank to another branch, or one post office to another post office?
A. PPF Account Transfers Forms are available with the post office/branch where you are having account, fill up the form and submit for transfer.
Q. What is the procedure for transfer of a PPF account from a Bank to a Post Office?
A. The Bank will issue an “Account Payee Cheque” or a Demand Draft for an outstation transfer. The “Account Payee Cheque” will be in favour of the transferee Head Post Office along with a certified copy of the ledger and all other related records in original like –
o application for opening the account
o application form
o signature cards and
o nomination forms.
The cheque/draft will be drawn by designation and will indicate that it relates to PPF Account No……….. On receipt of the PPF account on transfer with the cheque or draft from the bank, the account will be opened at the transferee Head Post Office like any other new account is opened.
Q. I have a PPF account in State Bank of India. Can I instruct the bank to take out Rs 5,000 every month from my savings account and automatically deposit it my PPF account? What instructions do I give to the bank?
A. As per Public Provident Fund Act, 1968, any individual can deposit a minimum of Rs. 500 and a maximum of R 1,00,000 in a financial year.
The deposit can be made by way of cash, cheque, NEFT (national electronic fund transfer) and/or SIP (systematic investment plan). The depositor can instruct the bank/branch in writing that a specified sum of money be paid into her PPF account by debit to her account per month. The depositor should give standing instructions to her bank on the above lines giving details of both the accounts. The customer should ensure adequate balance in her account for the bank to carry out standing instructions.