PPF or Public Provident Fund Account is a small saving account for everyone. The government of India operates this scheme. PPF account usually gives better interest rate than bank fixed deposit. The deposit in PPF account also saves tax under section 80C of the income tax act. You can open PPF account in a post office or banks. Due to its unique features, PPF account is very popular among the general public.
Features of a PPF Account
A PPF account is small saving scheme for the long term. Primarily it was designed to save money for the retirement. Therefore, unlike a saving account the PPF account locks your money for 15 years. It means you have to operate a PPF account at least for the 15 years.
A PPF account is very tax friendly. The investment in PPF account is eligible for tax deduction under section 80C. Up to investment of 1.5 lakh in a PPF account is eligible for tax deduction. The interest earned from the PPF account is also tax-free. The maturity amount is also free of any tax liability.
The PPF account gives competitive interest rate. Normally it is better than the bank fixed deposit. The interest rate of PPF is linked to yield of the 10-year government bond. The interest rate of PPF is a sensitive issue, hence government is very liberal about it.
The PPF deposit goes to the account of the government. The government is responsible for its safety. Thus, A PPF account is considered the most secure investment. It is safer than the bank fixed deposit.
The PPF account can be opened through the post offices or banks. Government operates many small saving schemes through the post offices and banks. Not every bank open a PPF account. Neither Every branch of a bank opens a PPF account. Along with SBI, almost all nationalised scheduled bank open a PPF account. Among private banks ICICI Bank and Axis bank open a PPF account.
You can take loan against the PPF account balance. The interest rate of the loan is 2% higher than the PPF interest rate. The loan is available from 3rd year to 7th year of PPF account opening. There are some terms and conditions for the PPF loan.
The PPF corpus can’t be attached against any decree of the court. It means that the PPF account can’t be forfeited by the lender.
The PPF account can be transferred from one bank to another, from one branch to another branch and from the post office to bank or vice versa.
You withdraw total PPF balance with interest at the end of 15 years. The 15 years is calculated from the beginning of the first financial year. If PPF account opened on Dec 2015. The calculation of 15 year period will start from 1st April 2016. The account will mature on 31 March’ 2031.
You can also close PPF account before the maturity. The reason should be medical emergency or higher education.
Rules of PPF Account
PPF account can’t be opened in the name of HUF or company. It can be opened in the name of an individual. The individual can be a minor as well. You can’t open a joint PPF account.
There should be a minimum contribution of Rs 500/year in a PPF account.
The contribution to a PPF account can’t go beyond the maximum limit. Now it is 1.5 lakh. The excess amount will neither earn interest nor get income tax deduction.
In case there is no contribution in a financial year, The PPF account becomes inoperative. An inoperative PPF account can be made active after paying the minimum annual due for each lapsed year and penalty of Rs 50/year.
You can deposit money in a PPF account up to 12 times in a year.
You can’t withdraw the PPF balance before the maturity period except medical emergency and higher education. Partial withdrawal is possible from 7th year. Withdrawal is subject to terms and conditions.
You can extend PPF account after the maturity. The extension can be done in the blocks of 5 years. The money again gets locked for 5 years, but there are liberal rules of partial withdrawal.
After 15 years, annual contribution is not mandatory.
PPF Account is one of the best tax saving investments. It has many benefits over other investments.
- PPF account is one of the safest investment.
- The interest rate of PPF reviewed ever year. You will always get market rate.
- The loan against PPF balance is at very low rate.
- It inculcates the discipline of investing regularly.
- Being a long term investment option, It helps in the accumulation of wealth.
- There is no chance of misselling or fraud. Your money will always remain safe and sound.
- The PPF account gets linked to your online saving account. You can view your PPF account statement online. You can also deposit PPF contribution online.
- PPF balance will never leave you, what if you become a defaulter.
PPF account can be more beneficial if you follow 8 selected tips of a PPF account.
PPF Interest Calculation
The interest calculation of PPF is slightly different. The compounding is done annually but interest is calculated monthly. Unlike a saving account, interest is calculated on the minimum balance between 5th day and last day of the month. Hence, to get the interest of a month, you must deposit the contribution before 5th day of the month. You can use the PPF monthly calculator to know the PF maturity amount.
The interest of each month is added into the PF balance at the end of the financial year.
Recommended: Offline and Online PPF calculator
Do you find the PPF account useful? If yes, I will tell you the operations of a PPF account.
Account opening of PPF
The PPF account can be opened in a post office which is double handed and above. The bank branches which transact the government businesses open a PPF account. SBI also opens PPF account. Nowadays all the branches of some banks accept the account opening form of PPF. The account is opened from some other branch. This way every branch of the bank facilitates to open a PPF account.
- To open a PPF account, you need KYC documents and one photograph.
- PPF account can be opened with Rs 100. However, you must deposit minimum Rs 500 in a year.
- The account can be opened by cash/cheque. In case of a cheque, the date of realisation of cheque in will be the date of account opening.
- Nomination facility is available at the time of opening and also after opening of the account.
- The subscriber can open another account in the name of minors but it is subject to maximum investment limit of 1.5 lakh.
PPF account can be transferred in following ways.
- From one branch to another branch within a bank.
- From one bank to another bank.
- From post office to bank
- From bank to a post office.
- From one post office to another post office.
After the transfer of PPF account, It would be considered as a continuing account. To transfer a PPF account customer is required to apply for transfer in a prescribed form. The bank or post office send the original documents and copy of the account to the post office or bank where customer want to transfer the account. The cheque or DD of the outstanding balance is also sent with the documents. The PPF account is opened with new bank or post office. The tenure of the PPF account is calculated as per the original account. At the new branch, you required to fill the account opening form and give fresh KYC documents.
Also Read: How To Transfer A PPF Account
Closure of PPF Account
The PPF account matures after 15 complete financial years. If you have opened PPF account in September 2015, it will mature on 31st March 2031. After the PPF account matures, you can close it and get back the entire amount.
In the dire situation you can close PPF account before the maturity. The government has relaxed the maturity rule of there is a medical emergency or money is required for higher education. The close PPF account prematurely, the account should be 5 financial year old.
You can also continue the PPF account. Indeed, you have three option after the maturity of the PPF account.
- Withdraw total PF balance
- Extend the PPF account without any contribution
- Extend the PPF account with contribution
1. Withdraw the entire Balance
After the maturity, you can withdraw the total PF balance with the interest. To withdraw the entire amount you have to visit the bank or post office with passbook. You are required to fill the form C to withdraw the balance. Your entire balance and interest till preceding month would be given to you.
2. Extension of PPF Account Without Any Contribution
You can also extend the PPF account further. Even, you are not required to contribute any amount. To choose this option, you are not required to take any step. This is a default option. After one year of the maturity, your account will automatically go to this option. In this option, you PPF account will behave like a saving account. You can withdraw money anytime.
- Any amount of money you can withdraw.
- You can withdraw only once in a year.
- The remaining balance will earn interest as usual.
- After you withdraw complete amount, the account gets closed
- You can’t deposit money in this option.
- Since you can’t deposit money, this option would not give you tax benefit under section 80C.
3. Extension of PPF Account With Contribution
You have to choose this option within one year of the PPF account maturity. To choose this option, you have to submit the form H for the extension. This extension would be for 5 years only. For further extension, you need to fill the form H again. This option retains most of the features of PPF account.
- You have to contribute minimum Rs 500 once in a year
- You would be able to claim a tax deduction.
- You can’t close the account before completion of 5 year block.
- You can withdraw some amount once in a year.
- The total withdrawal in 5-year block can’t exceed 60% of the maturity balance.
- After completion of 20 financial year from the account opening, you will again have the above 3 option.
In my opinion, if you don’t have any cash flow problem, you should go with the third option. It will give you tax ssaving as well as facility if partial withdrawal. Once you retire, you can opt for option 2. In this option you can withdraw money as per your requirement. The remaining balance will keep earning interest without any tax liability.
FAQs of PPF Account
Question: Like a saving account, can I have more than one PPF account in my name
Answer: You can open only one PPF account in your name. If you wish, yo can open a PPF account in the name of your family members. However, total contribution of your and dependant family member can’t go beyond maximum limit.
Question: What are documents required to open a PPF account?
Answer: These documents are required to open a PPF account.
- PPF account opening form (Form A )
- Nomination Form
- Passport size photograph
- Copy of PAN card/ form 60-61
- ID proof and Residence proof as per Bank’s KYC norms
Question: Can I close or terminate a PPF account before the maturity?
Answer: No. You can close a PPF account before the maturity. Only in the case of the death of a customer, their nominee /legal heir can close the account by submitting the death certificate.
Q. What if PPF account turns inoperative and I don’t reactivate it?
Answer: The balance in your PPF account will continue to earn interest. On the maturity, you will get the PPF balance with interest. But you can neither apply for a loan nor for a premature withdrawal. Also, you can’t make any further investment before reactivating the account.
Question: Can I change the nomination?
Answer: Yes, you can change the nomination using the nomination variation form when required.
Question: Can I partially withdraw from PPF balance twice in a year?
Answer: No you can’t withdraw more than once in a year.
Question: Is Partial Withdrawal allowed from a Minor’s Account?
Answer: It is allowed if money is used for the minor. You need to give a certificate in this regard.
Question: Can a nominee continue to operate the PPF account of a deceased?
Ans: No, nominees are not allowed to operate the account of deceased subscriber. The account needs to be closed by submitting Form G with proof of death. However, the account will earn the interest till the closure.
Question: Can a change in name of female subscriber on account of marriage possible?
Answer: After the marriage, a female subscriber may request for change in surname by submitting marriage certificate.
Question: Can a PPF account be transferred from one individual to another?
Answer: A PPF a/c. is not transferable from one individual to another.
Question: Till when we can continue the PPF account
Answer: After maturity you can extend the PPF account by submitting PPF Continuation Form – H at the branch for any period in a block of 5 years. You can even retain the account after maturity for any period without making any further deposits. The balance in the account will continue to earn interest at normal rate as admissible on PPF account till the account is closed.
Question: Can I claim tax deduction for the subscription of my child and wife.
Answer: You can claim tax deduction for your dependant child and wife’s subscription as money is going out of your pocket. However, If wife is working, she herself should claim for the tax benefit. Refer to the clubbing rule of income tax.
Question: Can I also claim tax benefit for the subscription of my parents PPF account. I am paying the amount.
Answer: No, you can’t claim tax deduction for your parent’s subscription.
Question: Which date should be considered for deposit of a cheque? the realisation date or submission date?
Answer: Till 2010, it was submission date. But, now realisation of cheque is considered as the deposit date. Therefore, you should take account the time of cheque encash before submitting the cheque deposit. If a cheque is deposited on 5th April and it gets realized on the 7th April, you would lose the interest of April.
Question: Can I give standing instruction to deposit into PPF account?
Answer: Yes, you can use the ECS facility of the banks to give this mandate. If your PPF account is linked with online saving account, you can also give the standing instruction to deposit into the PPF account.
Question: Can an NRI (Non-Resident Indian) open a PPF account?
Answer: No, a Non-Resident Indian (NRI) is not allowed to open a PPF account. If you inadvertently opened an account after becoming an NRI, you should close it.
Question: I am an NRI, but PPF account was opened before getting the NRI status. Should I continue the account till the maturity?
Answer: In such case where account is opened before becoming NRI, the subscriber can continue the PPF account till maturity. She/he can also keep depositing the subscription amount till maturity. However, an NRI can’t extend the PPF account. After the maturity, the PPF account will not give any interest.
Question: From which account can an NRI invest in the PPF account?
Question: Can PPF withdrawals be repatriated?
Answer: Yes, it can be repatriated through the NRO account. You are permitted to repatriate up to 1 million dollar in a year from the NRO account. You can use this window for PPF as well.
Question: Is it possible to avail section 80C benefit without making deposits in the PPF account?
Answer: Yes, but only from 7th financial year onwards. The trick is to make partial withdrawals and redeposit it in your PPF account.