PPF (Public Provident Fund) Account

Article explains What is PPF (Public Provident Fund) Scheme, Who are eligible for Public Provident Fund Scheme Accounts, Where Can One open a PPF Account, Documents required for Opening of PPF Account, Public Provident Fund Rules, What are the benefits of PPF Account, What is the biggest draw back of the PPF Scheme, What is the rate of interest on PPF Account, Eligibility for Loan from PPF Account, What is the schedule for withdrawals from PPF account, What will happen if minimum subscription in one particular financial year not made in PPF Account, What are the Rules for Non Resident Indians for Opening / Continuing PPF account opened before they became NRI, What are the options available to the subscriber on maturity of the PPF account, What are the rules for transfer of PPF account from one bank to another bank and What are the rules for nomination in PPF account.

1. What is PPF (Public Provident Fund) Scheme ?

The full form of PPF is Public Provident Fund Scheme. Public Provident Fund scheme of the Central Government was framed under Public Provident Fund Act, 1968. PPF is a government backed, long term small savings scheme, which was initially started by the Government to provide retirement security to self employed individuals and workers in the unorganized sector. However, at present PPF is considered as the best tax saving scheme across all sections of the people who needs to invest to save some tax.

2. Who are eligible for Public Provident Fund Scheme Accounts ?

• Individuals who are residents of India can open an account under the scheme.
• Only one PPF account can be maintained by an Individual, except an account that is opened on behalf of a minor or a person of unsound mind of whom he is the guardian. Thus, PPF account can also be opened by either parent under the name of a minor or by guardian under the name of a unsound mind person.  However, each person is eligible for only one account under his/her name. Mother and Father both cannot open Public Provident Fund (PPF) accounts on behalf of the same minor. Thus, in case a couple has two children, they can maximum open four accounts i.e. two in their own accounts and two in the name of their children under guardianship of either of the parent.
• Non-resident Indians (NRIs) are not eligible to open an account. However a resident who becomes an NRI during the tenure prescribed under Public Provident Fund Scheme has to close his account. Read- PPF account deemed to be closed on Resident A/c holder becoming non Resident

• Since 13th May 2005, Hindu Undivided Family can not open an account under the scheme. However, accounts opened prior to that date may continue subscription to their account till maturity. They can not extend the account any further.

3. Where Can One open a PPF Account ?

The PPF account can be opened at either of the following :

(a) Branches of State Bank of India and its subsidiaries,

(b) Other designated nationalised banks,

(c) Selected Post Offices across India.

4. Documents required for Opening of PPF Account :-

Following documents are usually required for opening a PPF account :-

• Account Opening Form (Form  A)
• Copy of PAN Card
• Copy of Aadhar Card
• Residence proof – Passport /  Electricity Bill / Aadhar Card
• Identity proof – Voter ID/ Driving License/ Aadhar Card
• Two passport size photographs

5. Public Provident Fund Rules :

• It’s a 15 years scheme. Thus, as per normal rules, Public Provident Fund Scheme, 2019 account gets matured after the completion of 15 years from the end of the year in which the account was  opened. However, on maturity this period can be extended any number of times for a block of 5 years each time. Application for extension must be submitted within one year from the date of maturity in Form 4.
• No premature closure of the account is allowed except in certain special cases. In case of the death of a Account holder, their nominee /legal heir can close the account by submitting the required documents as provided, premature closure of PPF accounts shall now be permitted in cases such as treatment of life threatening disease of the account holder, his spouse or dependent children or parents and higher education of account holder or dependent children or change in residency status. However, 1% of the interest earned on deposits, charged as a penalty for premature closure (not applicable in case of death).z
• Every Individuals shall have only one PPF account in their name (except in case account  opened on behalf of minor or unsound mind person). If at any time it is found that more than one account in the name of same person then second account will be immediately deactivated, and only principal amount shall be payable).
• A person cannot open a PPF account, if any joint account already exist with minor.
• An individual can open account with Minimum initial deposit of Rs. 500 and maximum deposit of Rs.150000/ shall be made in a year.
• Account can be opened by cash / Cheque and in case of Cheque, the date of realization of Cheque in Govt. account shall be date of opening of account.
• A person having PPF account shall not get any interest on the amount which exceeds Rs-150000/.
• The investments can be made in multiples of Rs. 50 either as a whole sum, or in instalments (maximum instalments should be 12 in a year).
• The entire balance can be withdrawn on maturity and  Interest received is tax free.
• Deposit to PPF is eligible for tax deduction u/s 80C of Income Tax Act, 1961.

6. What are the benefits of PPF Account ?

• Deposits upto Rs 1,50,000 p.a. into your PPF account are deductible under Section 80C of Income Tax Act 1961.

• Even contributions to PPF accounts of spouse and or children are also eligible for tax deduction maximum upto 150000/- in totality.
• The balance in PPF account cannot be attached to any claim in case of debt or liability.

7. What is the biggest draw back of the PPF Scheme ?

It is a long term investment, and thus people who are ready to block the funds for longer tenure should opt for this scheme. Although part withdrawals and loans are allowed but these are available only as a small percentage of the total balance.

The rate of interest allowed on PPF account has been less than the inflation rate for number of years and thus some consider these to be negative returns.

NOTE- In spite of these drawbacks PPF is considered as the top scheme for the investors who wish to save tax through Section 80C or earn tax free interest.

8. What is the rate of interest on PPF Account?

The rate of interest payable on PPF balances is now fixed on quarterly basis from 1st April 2016 onwards (previously it was fixed on yearly basis) current interest rate is 7.9% from July 2019 onwards. The rate of interest has fluctuated a lot during last few years. The details of the rate of interest paid during last few years is given below:-

Period	Interest Rate (p.a.)
01st  Dec 2011 – 31 March 2012	8.60%
01st  April 2012 – 31st March 2013	8.80%
01st  April 2013 – 31st March 2014	8.70%
01st  April 2014 – 31st March 2015	8.70%
01st  April 2015 – 31st March 2016	8.70%
01st  April 2016 – 30th Sept 2016	8.10%
01 Oct 2016 – 31st Mar 2017	8.0%
01st  April, 2017 – 30th June, 2017	7.9%
1st July, 2017 – 30th September, 2017	7.8%
1st October, 2017 – 31st December, 2017	7.8%
1st January 2018 – 31st March 2018	7.6%
01st  April, 2018 – 30th June, 2018	7.6%
1st July, 2018 – 30th September, 2018	7.6%
1st October, 2018 – 31st December, 2018	8%
1st January 2019 – 31st March 2019	8%
01st  April, 2019 – 30th June, 2019	8%
1st July, 2019 – 30th September, 2019	7.9%

Interest on PPF is calculated on the minimum balance in your account between the 5th and the last day of every month. Therefore deposit shall be made on or before the 5th of that month, so that interest for the entire month shall be received.

9. Eligibility for Loan from PPF Account ?

A person having PPF account can avail the loan facility from third financial year upto end of fifth financial year. The loan amount shall be limited to 25% of the balance outstanding to the subscriber’s credit at the end of the second year immediately preceding the financial year in which the loan is requested.

Repayment of Loan Amount : The loan repayment is required to be made in one lump sum or in two or more monthly instalments within 36 month period. After the principal amount of the loan is fully repaid, the subscriber shall pay the interest amount in not more than two monthly instalments. Interest is calculated at 1% on the amount for the period commencing from the first day of the month following the month in which the loan is availed upto the last day of the month in which the last instalment of the loan is repaid.

10. What is the schedule for withdrawals from PPF account?

One can make one withdrawal per year starting from seventh year.  The first withdrawal can be done after the expiry of 5th financial years from the end of the year in which initial subscription was made. The amount of withdrawal will be limited to 50% of the outstanding balance credit at the end of the fourth year immediately preceding the year in which the amount is to be withdrawn, or the balance at the end of the preceding year, whichever is lower. Thereafter one withdrawal per year. The withdrawal amounts are not repayable.

Example- An account opened in April 2009 shall be eligible for partial withdrawal from 1st April, 2015. For a partial withdrawal requested in April 2015, the amount of withdrawal will be limited to 50% of the lower of the balances standing to his / her credit as on 31st March, 2012 or as on 31st March, 2015.

11. What will happen if minimum subscription in one particular financial year not made in PPF Account?

In case minimum subscription amount of Rs 500/ not made in a financial year then, such PPF account is marked as discontinued  account and shall be again revived by paying a nominal penalty of 50/- and minimum subscription amount for each year in which minimum subscription amount not made. The account will only be closed after maturity and will continue to earn interest till it is closed. The facility of loan or withdrawal will not be allowed from such account. Moreover, such a subscriber can not open another PPF account in addition to the de-activated account,at any other office.

12. What are the Rules for Non Resident Indians for Opening / Continuing PPF account opened before they became NRI?

NRIs are not eligible to open fresh PPF account. However, those NRIs who already had a PPF account, when they were resident in India, but became NRI during the tenure of the PPF account, then in that case rules of Pre mature closure of account will be attracted according to Public Provident Fund (PPF) Scheme, 2019

13. What are the options available to the subscriber on maturity of the PPF account?

A subscriber has three options at the maturity of the PPF account :-

(a) He / she  can withdraw the maturity amount,

(b) he / she  can extend the  account by a 5 year block, as many times as he / she  wants and make  fresh contributions every year,

(c) he / she  can extend the account without making any further contributions, and continue to earn interest on it every year.

14. What are the rules for transfer of PPF account from one bank to another bank?

In terms of  PPF scheme  subscribers can transfer their PPF account from one authorised bank or Post office to another.

• The subscriber should  approaches the bank / Post office where  he /she has  current PPF account  and makes an application for transfer of PPF account to  the Bank Branch / Post Office where he intends to transfer the same.
• The existing bank/Post office will process the application and send the original documents such  as a certified copy of the account, the account opening application, nomination form, specimen signature etc. to Bank branch / Post office where the account needs to be transferred,  along with  a cheque/DD for the outstanding balance in the PPF account.

15. What are the rules for nomination in PPF account ?

PPF Scheme allows nomination of one or more persons to receive the amount standing to the subscriber’s credit in case of death. However, no nomination is possible in case of minor account.

Checkout the Interest on PPF Exempt Under Section

(Republished with amendments)