Public Provident Fund

Public Provident Fund (PPF): Interest Rate, Features, & Benefits

Investment Tax Planning

Public Provident Fund (PFF) is a great investment scheme that helps you to build a corpus over the long-term. Moreover, it helps you save on taxes too in addition to other things. This scheme works very well as a retirement fund. Also, the minimum amount that you need to start investing in this scheme is Rs.500 only.

Hence, you must know all about this tax-savings-cum-investment scheme to properly utilize it and gain guaranteed returns. Read on to find out more!

What is Public Provident Fund?

Public Provident Fund (PPF) scheme is an investment option that allows you to build up a corpus over the long term. It usually provides an attractive rate of interest on the invested sum. Moreover, the returns you earn and the interest are not taxable. This makes it even more attractive.

 Features of PPF Account

  • Term: You need to hold your PPF for at least 15 years and then, you can extend it further for a period of 5 years if you want to.
  • Minimum Investment: The minimum amount you require to invest in a PPF per financial year is Rs.500 and the maximum amount needed is Rs.1.5 lakh. You can make investments in a lump sum or a maximum of 12 installments.

Note: If your annual investment exceeds Rs.1.5 lakhs, then you won’t earn any interest. Also, the amount won’t be eligible for tax deductions.

  • Frequency of deposits: You need to make a deposit in your PPF account at least once per year for the entire tenure of the scheme, i.e. 15 years.
  • Opening Balance: You can open a PPF account with only Rs.100.
  •  Nominee: All PPF account holders can have a nominee for their accounts. This can be done either while opening an account or any time after that.
  • Joint PPF account: You can hold a joint PPF account but it should be in the name of a single individual. You can’t open a joint account in two names.
  • Risk: PPF is a government-backed scheme, so, you are sure to receive guaranteed returns. There are no risks involved and you get complete capital protection.
  • Deposit Mode: The deposit can be made either via Cash, Cheque, DD, or an online fund transfer.

PPF Interest Rate

The interest rate on PPF is set by the Finance Ministry every year and is the same irrespective of whichever location your account is in. You will receive the interest on your PPF account on 31st March per year and it is calculated on the PPF account balance (lowest from the closing of 5th day to the last day of every month).

Currently, the PPF interest rate offered is 7.10% applicable from 1st January 2021.

Eligibility to Open a PPF Account

  •  The individual has to be an Indian citizen
  • A citizen can own a single PPF account. But, you can also own a second PPF account on behalf of a minor.
  • NRIs are not eligible for opening a PPF account. But, if a resident Indian had opened a PPF account before becoming an NRI can hold the account till its maturity.
  • Parents or guardians are allowed to open accounts on behalf of the minor children
  • HUFs are not eligible for opening a PPF account.

Documents Required to Open a PPF Account

  • PPF account opening form: Form A
  • KYC documents
  • Address Proof
  • PAN Card
  • Passport size photo
  • Nomination form- Form E

How to Open a PPF Account?

You can open a PPF account at any post office and nationalized banks. Moreover, PPF accounts can also be opened at major private banks such as ICICI Bank, Axis Bank, HDFC bank, and so on.

If you want to open a PPF account online, then first of all you need to hold an account with the bank where you want to open the PPF account. Given below are the steps you need to follow in order to open a PPF account online:

Step 1: Log into your net banking account

Step 2: Select the ‘Open a PPF account’ option

Step 3: Choose any one of the options ‘self account or ‘minor account’ as per relevance

Step 4: Enter the details required in the fields given

Step 5: Then, you’ll have to verify a couple of details such as your PAN.

Step 6: Once done, type in the denomination of amount you want to deposit in the PPF account

Step 7: At this point, you can set up some instructions to enable your bank to deduct this amount periodically. Or else you can go for a lump sum payment.

Step 8: After your choice has been made, an OTP will be sent to your registered mobile number.

Step 9: Once finished, your PPF account will get opened. Note down the account number displayed for future reference.

Offline Application

Step 1: Duly fill in the application form (i.e. Form A) that can be found at any post office, nationalized banks, or even a couple of private banks that offer PPF accounts.

Step 2: Submit all the required documents like KYC documents, ID proof, address proof, etc along with form A.

Step 3: Then, deposit the amount required to open the account and your account will be opened.

PPF Benefits

  • Secure Investment: Since PPF is backed by the government, so, the amount you invest and your returns and interest earned are all safe and free of risks.
  • PPF Tax Benefits: The contributions you make towards your PPF account are eligible for tax deductions up to a maximum of Rs.1.5 lakhs p.a. The interest earned is also tax-free.
  •  Avails High Interest: The interest rate for the PPF scheme is uniform throughout the country and is set by the Finance Ministry every quarter. Generally, PPF fetches a higher rate of interest as compared to FD rates of the banks. Currently, it is at 7.1% p.a.
  • Safe from Government Orders: Your PPF account will not be affected by any order or decree issued by any court as per the Government Savings Bank Act, 1873.
  • Partial Withdrawal: You can also partially withdraw your PPF in case of an emergency. This can be done after the completion of 5 years of holding the account.
  • Loan against PPF: You can apply for a loan against your PPF account balance. The maximum amount that you can take as a loan is 25% of the PPF account balance.

How to Check PPF Account Balance?

PPF services are offered both online and offline. So, you can check your PPF account balance both online and offline. Given below are the steps required for both these procedures.

Check Your Balance Online

Step 1: Make sure that your bank account has an active net banking facility.

Step 2: Enter your credentials and sign in to your PPF account.

Step 3: After logging in, you will be able to check your PPF balance on the screen.

You can also do other things here like transfer funds to your account, set up instructions for your PPF, download the account statement, and so on.

Check Your Balance Offline

When you open your PPF account, the bank will provide you with a passbook that consists of your account details. You will find details like your account balance, account number, bank branch details, credits/debits, and so on.

So, the offline method of checking your account balance is by updating your passbook. You need to visit your bank branch and have your passbook updated. The updated PPF passbook will have all your credits and debits printed on it.

How to Withdraw Your PPF: Rules and Procedure

As already mentioned, the PPF has a mandatory lock-in period of 15 years. So, you can fully withdraw your PPF account balance along with the accumulated interest and then close the account.

But, you can make emergency partial withdrawals as well. Such withdrawals are allowed only after you have held the PPF account for at least 5 financial years. For instance, suppose, you opened a PPF account on Feb 20th, 2016, then you can make a withdrawal from the fiscal year 2021-22.

The account holder is allowed only one withdrawal every financial year. Let’s talk about the maximum amount that you can withdraw every financial year. It should be the least of the following:

  1. a)     50% of your PPF account balance at the end of the last fiscal year
  2. b)     50% of your PPF account balance at the end of the 6th fiscal year, preceding the ongoing year.

Procedure of Withdrawal

  • Follow the steps given below to partially or fully withdraw the amount lying in your PPF account:
  •  Fill up form C along with relevant details like account number, amount to be withdrawn, and so on.
  • Along with form C, you need to provide a declaration stating the no other amount is to be withdrawn in the same fiscal year.
  • If the account is in the name of a minor, then you need to provide an additional declaration. This one should state that the amount is needed for the minor who is still minor and alive.
  •  You also need to submit a copy of your passbook along with the form.
  • All these documents should be submitted at the bank or post office branch where your PPF account lies.

PPF Tax Benefits

The PPF scheme is one of the EEE schemes, i.e. Exempt-Exempt-Exempt regime of taxation. This means that the contribution you make towards the PPF account every year is not taxable. It is eligible for a tax deduction as per Section 80C of the Income Tax Act up to a maximum of Rs.1.5 lakh p.a. Other than that, the interest accrued on the amount and the maturity amount is also not taxable.

Availing a Loan Against PPF

You can avail of a loan against your PPF account from the 3rd fiscal year up to the 6th fiscal year. Calculate this time frame from the time of account opening. Also, you can take up a second loan only after the first loan has been closed.

Follow the steps given below to avail of a loan against your PPF account:

Step 1: Fill up the form D with details like your loan amount, account number, and so on.

Step 2: You need to submit an undertaking as well stating that you’ll repay the borrowed amount within 3 years along with the interest.

Note: The maximum amount that you can borrow against your PPF account is 25% of the balance of the 2nd year preceding the application year of the loan. For example, if you want to take the loan in April 2021, then the maximum loan amount will be 25% of the balance on March 31st, 2020.

Step 3: The documents need to be submitted at the post office branch or a bank branch where your PPF account lies.

Interest on Loan Against PPF: The rate of interest at which you need to repay the loan taken against PPF accounts is 2% more than the existing interest rate. But, you don’t need to pay the interest with the EMI amount. Once, the principal loan amount has been completely repaid, the interest needs to be repaid within 36 months.

PPF Extension

We’ve already mentioned that the mandatory tenure of a PPF account is 15 years. And the account holder can extend the PPF tenure further, in blocks of 5 years. You can extend your account either with a contribution or without contribution.

PPF Account Closing

There was a time when the Finance Ministry didn’t allow you to close a PPF account before its maturity. However, now you can prematurely close your account as per recent policy changes. Provided, you follow certain terms and conditions.

Reason for closing

Can be any medical emergency, higher education, etc.

When Can You Close Your PPF Account

You can close it only after the completion of 5 years from the date when you started it.

Procedure to Close your PPF Account

Submit a written application to the accounts office of the bank or post-office branch where the PPF account is held. Keep in mind that the reason should be legit and strong enough.

Charges For Premature PPF Account Closing

Since you are closing your PPF account prematurely, so there will be a penal charge. This is kept in order to discourage people from making impulsive decisions to close their accounts. The charge is 1% less than the rate of interest applicable on the date you opened the account.

PPF Nomination

  •  You can make a nomination in favor of one person or even more than that. But, if you choose more than one person as a nominee, then make sure that you specify the percentage share of 
  • If the PPF account is for a minor, then you can’t make a nomination.
  • You can add a nominee to your PPF account via Form E.
  •  Nomination can be made while opening the account or at any other time during the tenure of the scheme.
  • You can also make changes, cancellations, or alterations in the nomination via form F.
  • There should be two witnesses who need to sign the nomination forms along with the account holder.
  • After duly filling up the form, you need to submit it at the bank or post office branch where your account is held.

FAQs

Q1. What to do if my PPF account becomes inactive?

Ans. A PPF account can become inactive if you don’t make the minimum contribution of Rs.500 per year. If you want to revive an inactive PPF account, then you need to make a written request to reactivate your account. Along with that, you need to pay a penalty fine of Rs.50 for all those years for which the account has been inactive.

Q2. Can I transfer my PPF account?

Ans. Yes, you can. A PPF account can be transferred from the bank to the post office or vice versa. Also, you can have it transferred from one branch to another of the same bank.

Q3. Does PPF offer tax benefits?

Ans. Yes, it does. PPF is an EEE scheme which means that the contributions you make towards it, the internet earned, and the maturity amount, all are free of taxes. Note that the contribution should be up to a maximum of Rs.1.5 lakh to avail of tax deductions under Section 80C of the IT Act.

Q4. Is it a must to withdraw the PPF account balance after the tenure of 15 years?

Ans. No, you need not withdraw the PPF balance once the term of 15 years ends. You can extend the tenure so that the amount fetches you even more interest.

Q5. How many times can I extend the tenure of my PPF account?

Ans. You can extend the tenure of your PPF account as many times as you want to. But, the extension can be done in blocks of 5 years only.

Q6. When can I close my PPF account?

Ans. It is ideal to close your PPF account at the end of the complete tenure of the scheme, i.e. 15 years. However, in special circumstances like an emergency or if you can’t contribute to the account any longer, you can close your PPF. This is allowed only after 5 years of holding a PPF account provided you pay a penal charge.

Q7. Can I own 2 PPF accounts?

Ans. No, you cannot have any more than one PPF account. But, you can have another PPF account apart from your own if it is on the behalf of a minor. This is possible if you are a parent or guardian of the child.

Q8. What is the minimum lock-in period of PPF?

Ans. The lock-in period of any PPF account is 15 years. But, you can extend this in blocks of 5 years after the tenure is over. Also, you can make partial withdrawals after holding the PPF account for 5 years.

Q9. What is the minimum amount required to open a PPF account?

Ans. The minimum amount needed to open a PPF account is Rs.500.

Q10. Can a senior citizen start investing in the PPF scheme?

Ans. The Government hasn’t put any restrictions on the age limit for opening a PPF account. Anybody can open a PPF account if they are an Indian citizen and start investing.

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