New Changes in Public provident fund (PPF) account:

The Govt. of India has notified the revised Public Provident Fund Scheme 2019 on 12th December 2019, wherein a few changes have been made primarily related to the account operations. Here are five changes in PPF account rules that you must know:

√ Removal of restrictions in number of deposits in a year.

√ Additional reasons allowed for premature closure of account.

√ Continuation of PPF Account after 15 years without making deposit.

√ Change in the Interest Rate on Loan from PPF Account.

√ Changes in Forms for PPF Account

Opening of PPF Account:

PPF account can be opened with either a Post Office or with any nationalised bank like the State Bank of India or Punjab National Bank, etc. These days, even certain private banks like ICICI, HDFC and Axis Bank among others are authorized to provide this facility.

Interest Rate of PPF:

The current interest rate is 7.1% p.a. (for the quarter 1 April 2021 to 30 June 2021; continued from the previous quarter) that is compounded annually. The Finance Ministry set the interest rate every year, which is paid on 31st March. The interest is calculated on the lowest balance between the close of the fifth day and the last day of every month.

Eligibility to Invest in PPF:

Any Indian citizen (Individual) can invest in PPF. One citizen can have only one PPF account unless the second account is in the name of a minor.

NRIs and HUFs are not eligible to open a PPF account.

Characteristics of PPF:

√ Tenure: The PPF has a minimum tenure of 15 years, which can be extended in blocks of 5 years as per your wish.

√ Investment Limits: PPF allows a minimum investment of Rs 500 and a maximum of Rs 1.5 lakh for each financial year.

√ Risk Involved: Since PPF is backed by the Indian government, it offers guaranteed, risk-free returns as well as complete capital protection. The element of risk involved in holding a PPF account is minimal.

√ Balance: The account can be opened with just Rs 500. Annual investments above Rs 1.5 lakh will not earn interest and will not be eligible for tax saving.

√ Loan Against PPF: loan amount can be a maximum of 25% of the 2nd year immediately preceding the loan application year. You can taken the loan against PPF account between 3rd and 5th Year.

PPF withdrawals:

As a rule, can fully withdraw the PPF account balance only upon maturity i.e. after the completion of 15 Years. Upon completion of 15 years, the entire amount standing to the credit of an account holder in the PPF account along with the accrued interest can be withdrawn freely and the account can be closed. However, if account holders are in need of funds, and wish to withdraw before 15 years, the scheme permits partial withdrawals from year 7.

Tax benefits of investing in PPF:

PF is one investment vehicle that falls under the Exempt-Exempt-Exempt (EEE) category. This, in other words, means that all deposits made in the PPF are deductible under Section 80C of the Income Tax Act. Furthermore, the accumulated amount and interest is also exempt from tax at the time of withdrawal.

Closing of PPF account:

Upon completion of the 15-year term, you can access the entire account balance, withdraw it fully, and close the account. Any time before completing the full tenure of the account, you cannot withdraw the entire account balance in any circumstances. However, premature withdrawal of up to 50% of the account balance is allowed after completing 5 years. This is permitted under special circumstances only.

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Qualification: CA in Job / Business
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June 2021