6 Things to know about Public Provident Fund

As we all aware that the Public Provident Fund (PPF) is considered as most important and safe amongst all tax saving investments schemes.  This scheme is falls under the EEE category i.e Exempt, Exempt and Exempt which actually means if you invest in it, you will get a deduction u/s 80C on your income. Further, the interest you earn on it alongwith its maturity proceeds will be tax-free in the hand of investor.

Hence after looking into the importance and popularity of PPF scheme I have covered here 6 most important things related to Public Provident Fund (PPF) which you should aware of which includes How to open a PPF account under Public Provident Fund (PPF), No of accounts that can be open under Public Provident Fund (PPF), Deposit under Public Provident Fund (PPF), Forget to invest one whole year under Public Provident Fund (PPF), Manner of interest calculation under Public Provident Fund (PPF) and Premature closure of account under Public Provident Fund (PPF).

1. How to open a PPF account under Public Provident Fund (PPF)

Step 1: Head over to your nearest State Bank of India branch, or a branch of any of State Bank’s subsidiaries. You can also open an account in select nationalized banks and the post office. Further, some private banks such as ICICI bank also offer you the facility to open a PPF account.

Step 2: All you got to do is:

i. fill in the form,

ii. attach a photograph,

iii. state your Permanent Account Number (PAN).

Once your formalities are completed, you will receive a pass book which will record all your PPF transactions.

2. No of accounts that can be open under Public Provident Fund (PPF):

At any point in your life, you are allowed to have only 1 PPF account in your name.

If at any time it is seen that you have more than 1 account in your own name, the second account will be deactivated, and only your principal will be returned to you.

If you have a General Provident Fund account or an Employees Provident Fund account, you can still have a PPF account – there is no restriction.

An individual may also open one account on behalf of each minor or a person of unsound mind of whom he is the guardian. Please note that the only one account shall be opened in the name of a minor or a person of unsound mind by any of the guardian.

Joint account shall not be opened under this Scheme.

3. Deposit under Public Provident Fund (PPF)

1. Invest in multiples of Rs 50 with a minimum investment of Rs 500 per annum,

2. A maximum of Rs 1,50,000 per annum can be invested by one individual.

3. Any amount invested above Rs 1,50,000 will not earn any interest

4. Any amount invested above Rs 1,50,000 will not be eligible for deduction u/s 80C of the Income Tax Act, 1961.

5. You don’t need to invest it all in one shot, you can invest in various installments. There is no limit for maximum number of installments made during the year.

4. Forget to invest one whole year under Public Provident Fund (PPF)

Your account is considered de-activated, i.e., your account will not be credited for any interest in such cases.

In order to re-activate your account, you need to pay a fine of Rs 50 for each year that you have not made any subscription, and also make a minimum subscription of Rs 500 for each year that you have missed. Then your account will be reactivated and you will re-start earning interest.

5. Manner of interest calculation under Public Provident Fund (PPF)

Interest at 7.9% per annum shall be eligible for a calendar month on the lowest balance at the credit of an account between the close of the fifth day and the end of the month. Interest shall be credited to the account at the end of each year. Interest shall be credited at the end of the year irrespective of the change of the account office due to transfer of the account during the year.

6. Premature closure of account under Public Provident Fund (PPF)

An account holder shall be allowed premature closure of his account or the account of a minor or person of unsound mind of whom is the guardian on an application to the accounts office in Form-5, on any of the following grounds:

(a) treatment of life threatening disease of the account holder, his spouse or dependent children or parents, on production of supporting documents and medical reports confirming such disease from treating medical authority;

(b) higher education of the account holder or dependent children on production of documents and fee bills in confirmation of admission in a recognised institute of higher education in India or abroad;

(c) on change in residency status of the account holder on production of copy of Passport and visa or Income tax return.

Please note that an account under this Scheme shall not be closed before the expiry of five years from the end of the year in which the account was opened

Also, the premature closure, interest in the account shall be allowed at a rate which shall be lower by one per cent than the rate at which interest has been credited in the account from time to time since the date of opening of the account, or the date of extension of the account, as the case may be.