Everything You need to know about PPF (Public Provident Fund)

Article explains What is Public Provident Fund (PPF), Who can Invest under PPF Scheme, Rate of Interest on PPF and Taxability, Tax Benefits from Investment in PPF, Minimum and Maximum Deposit in PPF, Period and Lock in period, How to Open a PPF A/C, Documents required for opening PPF account, Closure of PPF Account and Loan against PPF.

What is PPF?

PPF stands for Public Provident Fund which is backed by Indian Government. Public Provident Fund (PPF) scheme is a long term investment option which offers an attractive rate of interest and returns on the amount invested.

Its features like guaranteed return, tax exemption under section 80C as well as tax free interest makes it the most popular investment among the risk averse investors. Another benefit in PPF is that the amount in PPF account cannot be attached under a court order for recovery of a loan or liability.

Who can Invest under PPF?

• Any Resident person whether employed or self employed can invest in the scheme.
• It Can be opened by minors. But Can’t be opened in joint names.
• Account Can’t be opened by HUF, NRI. However, if someone opens a PPF Account while he is a Resident of India but subsequently becomes a NRI, he shall be allowed to continue investing in his account.
• Nominee can be appointed by the account holder. But, After death of account holder, nominee cannot continue the account..
• A Power of attorney holder can neither open nor operate a PPF account.
• The grand father/mother cannot open a PPF account on behalf of their minor grandson/daughter.
• A person can open only one PPF account.
• Account can be transferred from one post office or bank to another post office or bank.

Interest on PPF

Rate of Interest on PPF is decided by government and are revised quarterly. Interest is compounded annually and credited at the end of every financial year.

Calculation of PPF Interest is bit tricky, if amount is deposited on or before 5th of the month then interest is credited for the whole month otherwise interest will not be given for the whole month. Interest is not calculated day wise but calculated monthly.

As of now the current PPF interest rate for July- September 2019 is 7.9% compounded annually.

Tax Benefits from Investment in PPF

• Any Amount invested under PPF is Exempted under section 80C upto a Cumulative limit of Rs. 1,50,000.
• Interest accred on PPF is 100% tax free. It is not taxable at the time of accrual nor at the time of receipt. Premature withdrawal is also exempt from tax.
• Tax exemption under section 80C can be availed by parents in case of deposits by minor. Total amount deposited by parent along with minor cannot exceed Rs. 1,50,000 thus total deduction under section 80C cannot exceed Rs. 1,50,000 in any case.
• Since PPF interest is exempt from income tax, no TDS is deducted on it whatever the amount is.

Minimum and Maximum Deposit in PPF

• Maximum amount that can be deposited in a year is Rs. 1,50,000
• After opening account minimum Rs. 500 is to be deposited each year. Penalty of Rs. 50 is charged for default per financial year.
• Amount can be deposited not more than 12 times in a year and not more than 2 times in a month.
• The deposits shall be in multiple of Rs.100/- subject to minimum amount of Rs.500.
• Amount can by deposited by cash or cheque or via online payment.

Period and Lock in period

PPF account is opened with a Lock-in period of 15 years. However on expiry account can be extended to a period of 5 years at a time. It can be extended any number of times for a period of 5 years each.

However, pre-mature withdrawals can be made from the end of the sixth financial year from the year in which account is opened.

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 the year in which the amount is withdrawn or the end of the preceding year whichever is lower. After 15 years of maturity, full amount can be withdrawn.

How to Open a PPF A/C?

• PPF Account Can be open in post offices or any authorised banks. (In Online or Offline both ways)

Documents required for opening PPF account

• A recent passport size photograph.
• Identity Proof copy with original to verify (Even PAN Card may be accepted as all tax payers are having it)
• Address Proof copy with original to verify
• Account opening form for PPF
• Paying in slip for PPF a/c
• Nomination form for PPF

Closure of PPF Account

• The account holder can premature close his account only after completing 5 financial years of opening of account. The condition is that the amount is required for treatment of serious aliments or life threatening diseases of the account holder, spouse or dependant children or parents or for higher education of the account holder. The account holder has to submit documents related from competent medical authority or  fee bills from a recognised institute of higher education as the case may be.
• If a person prematurely closes the account then account is debited from 1% interest rates from opening of account to closing of account. In other words, the account holder gets one percent less interest rate for the whole period of account.
• Nominee/legal heir of PPF Account holder on death of the account holder cannot continue the account, but account has to be closed.

Loan against PPF

This option helps in arranging loans for you at cheapest rates for short period of time. It is the easiest and cheapest method of taking loan. Personal loans from banks carry a high rate of interest normally 14% plus whereas loan against PPF currently carries only 10.6%.

Conditions for loan eligibility

Time period in which loan can be taken – You cannot avail loan immediately after opening a PPF saving account. You are eligible to avail loan against PPF after completion of one year from the end of fiscal year in which ppf account was opened.

Benefits-The loans availed against PPF account have many benefits:

• For availing this loan facility, no other security is required
• Loan repayment period is generally 3 years
• Interest rate is lower as compared to personal loans availed directly from bank

Some Important PPF Forms

• Form A– To open a Public Provident Fund (PPF) Account
• Form B– To deposit amount in PPF Account or to repay loans taken against PPF account
• Form C– To make partial withdrawals from a PPF account
• Form D– To request a loan against a PPF account
• Form E– To add a nominee to a PPF accounta
• Form F– To make changes to PPF account nomination information
• Form G– To claim funds in a PPF account by a nominee/legal heir
• Form H– To extend the maturity period of a PPF account

Author – CS Karan Nenwani, Karan Nenwani & Associates, Company Secretary in Practice from Indore and can be contacted at cskaran.nenwani@gmail.com