PPF

What Is The Public Provident Fund (PPF) Scheme?

The Public Provident Fund (PPF) Scheme, 1968 is a tax-free savings opportunity that was introduced by the Ministry of Finance (MoF) in India in the year 1968. Interest earned on deposits in the PPF account is not taxable. Deposits made towards PPF accounts can be claimed as tax deductions. This makes the PPF Scheme one of the most tax efficient instruments in India. It was launched to encourage savings among Indians in general, especially to encourage them to create a retirement corpus.

Since this scheme was launched to encourage savings across income classes, minimum deposit requirements are very low and affordable. They are also tax-free accounts, easily accessible, safe (being backed by the government) and simple to understand, making them a popular investment avenue for a large majority of individuals in India.

PPF accounts can be opened at any nationalized, authorized bank and authorized branches / post offices. PPF accounts can be opened at specific private banks as well. These accounts can be opened by filling out the required forms, submitting the relevant documents and depositing the minimum pay-in at such branches/offices that have been authorized for the same.

Interest rates are set and announced by the government of India. Interest is calculated for a financial year according to the rate announced for the said year i.e. unlike bank FDs the rates are not fixed for the entire tenure of the holding. The maximum amount that can be deposited in the account is also subject to change.

Benefits

·         Deposits can be made in lump-sum or in 12 installments.

·         Joint account cannot be opened.

·         Account can be opened by cash/ Cheque and In case of Cheque, the date of realization of C​heque in Govt. account shall be date of opening of account.

·         Nomination facility is available at the time of opening and also after opening of account. Account can be transferred from one post office to another.​​​

·         The subscriber can open another account in the name of minors but subject to maximum investment limit by adding balance in all accounts.

·         Maturity period is 15 years but the same can be extended within one year of maturity for further 5 years and so on.

·         Maturity value can be retained without extension and without further deposits also.

·         Premature closure is not allowed before 15 years.

·         Deposits qualify for deduction from income under Sec. 80C of IT Act.

·         Interest is completely tax-free.

·         Withdrawal is permissible every year from 7th financial year from the year of opening account.

·         Loan facility available from 3rd financial year.

·         No attachment under court decree order.

·         The PPF account can be opened in a Post Office which is Double handed and above.

·         Benefits of Investing in a PPF Scheme

·         Some of the key advantages of PPF accounts are stated below.

·         Attractive long-term investments: With a deposit period of 15 years and a lock-in period of 7 years, these accounts serve long-term investment goals. With interest rates compounded annually, effective returns tend to be more attractive vis-a-vis bank FDs.

·         Useful for retirement planning: Long-tenures, compounded, tax-free returns and capital protection make this an ideal option for building a retirement corpus.

·         Tax-free returns: Tax-free interest and withdrawals and tax-deductible investments.

·         Low-risk: Being government-backed, there is low risk of default.

·         Easily accessible: PPF accounts can be opened at nationalized, public banks or post offices and select private banks, all of which have wide reach. Accounts can be opened online as well.

·         No attachment: PPF funds can’t be attached under court order or laid claim to by creditors.

Eligibility - Who Can Open a PPF Account?

·         Only one PPF account can be opened per person. Resident Indians, 18 years or older, can open a Public Provident Fund Account. There is no upper age limit for opening this account.

·         Accounts can be opened for minors. Minors are those below the age of 18 years. However, the maximum limit of Rs.1.5 lakhs per year applies to deposits made in the minor and the major’s/guardian’s account, collectively. Grandparents cannot open an account in the names of their minor grandchildren.

·         Non-resident Indians (NRIs) cannot open a PPF account. However, account-holders who leave the country and obtain non-resident status after having opened a PPF account can continue to maintain their accounts until it matures i.e. until the end of the account’s 15 year term. NRIs are restricted from extending account tenures at maturity.

·         HUFs cannot open a PPF account, effective 2005. Those accounts opened by HUFs before May 13, 2005 can be continued until maturity without further extensions. An individual cannot open an account for an HUF (Hindu Undivided Family).

·         Foreigners cannot open a PPF account.

Documents Needed to Open a Public Provident Fund Account (PPF A/C)

·         Documents required to open a PPF account are KYC documents such as identity proof, address proof and signature proof. These commonly include the latest version of a person’s

·         Passport, PAN Card, Aadhar Card, Driving License, Voter’s ID, Employer’s letter, Utility Bill, Rental/Lease Agreement, Bank Account Statements, Ration Cards, Signed Cheque

·         Photographs

·         The account opening form, along with nomination forms if nominees are being named.

·         This is not an exhaustive list. Banks may request additional documents if necessary. In case of minors, age proof will be required i.e. the minor’s birth certificate or school certificate

Interest Rate:

From 1.04.2017, interest rates are as follows:- 7.9% per annum (compounded yearly).

PPF Account details
​Type of Account	Minimum Amount for Opening	Minimum Deposit	Maximum Deposit
Public Provident Fund(Individual account on his behalf or on behalf of minor of whom he is the guardian)	INR 100/-	INR. 500/- in a financial year	INR. 1,50,000/- in a financial year

History of interest rate:

Financial Year	Interest rate (p.a.)
2000 – 2001	11.00%
2001 – 2002	9.50%
2002 – 2003	9.00%
2003 – 2004	8.00%
2004 – 2005	8.00%
2005 – 2006	8.00%
2006 – 2007	8.00%
2007 – 2008	8.00%
2008 – 2009	8.00%
2009 – 2010	8.00%
2010 – 2011	8.00%
2011 – 2012	8.60%
2012 – 2013	8.80%
2013 – 2014	8.70%
2014 – 2015	8.70%
2015 – 2016	8.70%
2016 – 2017	8.10%
2017-2018	7.90%

PPF Interest rate vs Inflation:

FAQs about PPF Accounts

Can I increase my investment under the PPF scheme by opening 2 or more accounts in my name?

No. Under the Public Provident Fund Scheme, a person can hold and operate only one account in his/her name.

Can I continue to use an inactive account?

Yes. You can do so by paying the holding branch a penalty of Rs.50 for every year the account was inactive. You will also have to deposit a minimum of Rs.500 for every year the account was inactive as well as Rs.500 for the year you are activating the account.

Will I continue to earn returns if my account is inactive?

No. Interest will not be calculated for the year(s) the account is inactive. Once the account is revived, interest will be calculated on the balance held at time of revival.

If I open a PPF account in my minor child’s name, can I claim tax deductions from both accounts i.e. my child’s and mine, when I file taxes?

The maximum investment cap of Rs.1.5 lakhs applies to all contributions you make to your account, your minor child’s account and/or your spouse’s account, collectively. Only amounts up to Rs.1.5 lakhs can be claimed as deduction U/S 80C of the Income Tax Act. For e.g. if you contribute Rs.1 lakh toward your account and Rs.1 lakh toward your child’s account, you can claim only Rs.1.5 lakhs as deduction and not Rs.2 lakhs.

What if I wish to invest more money than the Rs.1.5 lakh limit?

Interest will be calculated and paid out only on amounts up to Rs.1.5 lakhs for any year. Only the maximum annual investments limit i.e. Rs.1.5 lakhs a year will be considered towards all calculations for all purposes.

The limit was raised from Rs.1 lakh to Rs. 1.5 lakh mid-way through 2014. If the limit is raised this year in the same way, how will I make the additional deposit? Should I wait for next year?

When the limit is raised during a financial year, banks and post offices are instructed to accept additional investments if investors wish to contribute up to the revised maximum limit. This is what was done last year for those who wished to contribute up to Rs.1.5 lakhs under the revised limit.

How is interest calculated? I got interest for 11 months instead of 12 months for the last year.

For any given month, investments made on or before the 5th will be considered for interest calculations for that month. Interest is calculated on the lower of the balance held on the 5th of a month to the end of the month.

For e.g. An account held Rs.1 lakh at the start of September. The account holder decided to invest Rs.50,000. He did so on September 10th. In this case, the balance on the 5th of September was Rs.1 lakh and was Rs.1.5 lakhs at month-end. Here, Rs.1 lakh is the amount that will be considered for calculation of interest. The additional investment of Rs.50,000 would be considered for the month of October.

If, however, the account holder had deposited the additional Rs.50,000 on September 3rd, the balance on the 5th of September would have been Rs.1.5 lakhs. This would have been the amount considered for interest calculations for the month of September.

I want to leave some money to my grandchild. Can I open the PPF account on her behalf?

No. Grandparents cannot open PPF accounts in their grandchildren’s names. The amount can be given to the parent/guardian who can open and operate the account in the name of their minor child/ward. However, if both parents of the minor child die, the grandparents, as guardians, can open and operate a PPF account for the minor child.

Is it mandatory to withdraw all the money in my PF account at the end of 15 years?

No. It is not necessary to redeem all the funds held in the account at maturity. The account term can be continued or extended for as long as the investor wishes to operate it. The account can be continued for 5 years per extension. Extensions can be done by depositing fresh funds or without making any further deposits.

Will I continue to earn interest on my account if I extend the maturity period beyond 15 years?

Yes. Interest will be calculated and paid out based on the interest rates prevailing during the period of extension. If no fresh deposits are made during the period of extension, interest will be calculated based on the balance held at the end of the 15th year. If fresh deposits are made to extend the term, it will be added to the balance at the end of the 15th year and the total amount will be treated as principal for interest calculations.

Can I extend my account for 2 years on maturity?

Extensions can be made in blocks of 5 years each.

What happens to the money in my account if I die before maturity?

It can be claimed by the nominees or the legal heirs in the absence of nominees. If a nominee was named by the account holder, he/she will receive the entire amount held in the account. If more than one nominee was named, the nominees will receive funds held in the account proportionately i.e. as stated by the account holder in the nomination form.

Is it necessary to name nominees?

It is not mandatory to name nominees for a PPF account. However, it is advisable to do so to avoid conflicts in the event of death and to have a clear transfer of funds to a desired person.

How can a nominee/legal heir claim funds in a PPF account?

Nominees or legal heirs can claim funds in a PPF account when the account holder has passed away. They will be required to produce proof of death of the account holder. Nominees can claim funds in the proportion stated by the account holder in the nomination form.

How long can I extend my account for?

PPF accounts have a maturity period of 15 years. However, this can be extended for as long as the account holder wishes to continue it. Extensions can be done for 5 years at a time. For e.g. if an account matures on March 31st 2015, it can be extended till March 31st 2020. The next extension will be until March 31st 2025 and so on.

I deposited money in my wife’s PPF account. Who can avail the tax deduction?

In this case it will be you who will be able to avail the tax deduction. The person making the contribution is eligible for tax deductions U/S 80C.

I deposited money in my parents’ PPF accounts but did not qualify for tax deduction U/S 80C. Why?

Only contributions made to an account holder’s own account, his/her spouse’s account or his/her minor child’s account can be claimed as deductions U/S 80C of the Income Tax Act. The total contribution to any one or all of the abovementioned person’s account is subject to the investment cap of Rs.1.5 lakhs per annum.

If I withdraw money from my PPF account, can I redeposit it to meet the minimum annual investment requirement?

Yes, you can withdraw money for personal purposes. It can be used to invest the Rs.500 required as annual investment.

Can I open a PPF account along with my wife or child?

No. The option to hold PPF accounts jointly is not provided under the PPF scheme. A person can hold and operate only one account in his/her own name.

If I need money, can I make withdrawals in addition to taking out a loan against my PPF account?

No, withdrawals and loans are exclusive of each other as per the rules of operating a PPF account. Loan facilities are extended to account holders only between the 3rd and 6th year of operating an active account whereas partial withdrawals are allowed from the 7th year onwards. This means you cannot avail a loan from the 7th year onwards nor can you make withdrawals before the 6th year.

This scheme was devised to promote savings and while loans and withdrawals are allowed to a certain extent to allow for some liquidity, the scheme, in general, does not aim to encourage a reduction in savings potential.