Public Provident Fund PPF – Benefits, Interest Rate, Features

What is Public Provident Fund Account (PPF)?

PPF stands for Public Provident Fund. It is a long-term savings scheme offered by the Government of India that aims to provide individuals with a safe and reliable investment option for their retirement planning and wealth accumulation. PPF accounts are regulated by the Indian government and are backed by the Ministry of Finance.

Benefits of Public Provident Fund Account (PPF)?

1. Tax Benefits: Contributions made to a PPF account are eligible for tax deductions under Section 80C of the Income Tax Act, up to a limit of Rs. 1.5 lakh per financial year. This reduces your taxable income and helps in saving taxes.
2. Tax-Free Returns: The interest earned on a PPF account and the maturity amount are both tax-free. This means that the returns generated from your PPF investment are not subject to any tax, making it an attractive option for long-term savings.
3. Attractive Interest Rates: PPF offers competitive interest rates that are generally higher than other fixed-income investment options such as fixed deposits. The interest rates are set by the government and are revised quarterly. This ensures that your investment grows at a good rate over time.
4. Long-Term Investment: PPF is a long-term savings scheme with a minimum lock-in period of 15 years. This encourages individuals to save for the long term, making it suitable for retirement planning or other long-term financial goals.
5. Capital Protection: PPF is a government-backed investment scheme, which means that your capital is secure. The government guarantees the repayment of the principal amount along with the accrued interest.
6. Flexibility in Investment: While PPF has a lock-in period of 15 years, it offers some flexibility. After the completion of the sixth year, you can make partial withdrawals from your PPF account, subject to certain conditions. Additionally, you can take a loan against your PPF account from the third year onwards.
7. Suitable for Risk-Averse Investors: PPF is a low-risk investment option as it is backed by the government. It is a preferred choice for individuals who are risk-averse and seek stable returns on their savings.
8. Estate Planning: In the unfortunate event of the account holder’s demise, the PPF account can be transferred to the nominee(s). This allows for effective estate planning and the smooth transfer of the investment to the designated beneficiary.

Where Can I Open Public Provident Fund Account (PPF)?

1. Post Office: You can visit your nearest post office and inquire about opening a PPF account. Post offices across India offer PPF account services.
2. Authorized Banks: Most banks in India offer PPF account services. You can visit any authorized bank branch and inquire about opening a PPF account. Some popular banks in India that offer PPF accounts include State Bank of India (SBI), Punjab National Bank (PNB), ICICI Bank, HDFC Bank, and others.
3. Online Platforms: Some banks also provide the facility to open a PPF account online through their internet banking portals or mobile banking applications. You can check with your bank if they offer this service.

Who Can Open Public Provident Account (PPF)?

(i) A single adult resident Indian can open a PPF account in their own name. This applies to individuals who are Indian citizens and meet the residency criteria.

(ii) A guardian can open a PPF account on behalf of a minor or a person of unsound mind. In the case of a minor, the account will be opened in the minor’s name, with the guardian acting on their behalf. Once the minor reaches the age of 18, they can operate the account independently.

Please note that as per the rules, only one PPF account can be opened by an individual. This applies across the country, whether it is opened at a Post Office or any Bank. Therefore, if you already have an active PPF account, you cannot open another one in your name.

Documents Required for Opening PPF Account

• PPF Account Opening Form: You will need to fill out the PPF account opening form, which is available at designated banks or post offices.
• Proof of Identity: You need to provide proof of identity, which can be any of the following documents: Aadhaar Card, PAN Card, Passport, Voter ID Card, Driving License
• Proof of Address: You need to provide proof of address, which can be any of the following documents: Aadhaar Card, Passport, Voter ID Card, Driving License, Utility bills (electricity bill, telephone bill, etc.), Bank statement
• Passport-sized Photographs: You will need to provide a few passport-sized photographs as per the requirements of the bank or post office where you are opening the PPF account.

Deposit

(i) Minimum Deposit: The minimum deposit amount required in a PPF account is Rs. 500 in a financial year. This means that you need to contribute at least Rs. 500 during the year to keep the account active.

(ii) Maximum Deposit: The maximum deposit limit in a PPF account is Rs. 1.5 lakh in a financial year. This limit includes the deposits made in your own account as well as in the account opened on behalf of a minor, if applicable. You cannot exceed this limit in a single financial year.

(iii) Multiple Installments: You can make deposits in any number of installments during the financial year. The deposits can be made in multiples of Rs. 50, but the total amount deposited should not exceed Rs. 1.5 lakh for the year.

(iv) Mode of Deposit: You can open a PPF account and make deposits by cash or cheque. If you choose to deposit by cheque, the date of realization of the cheque in the government account will be considered as the date of opening the account or the subsequent deposit.

(v) Tax Deduction: The deposits made in a PPF account are eligible for deduction under section 80C of the Income Tax Act. This means that you can claim the amount deposited in your PPF account as a deduction from your taxable income, subject to the overall limit of Rs. 1.5 lakh under section 80C.

Discontinuation of Public Provident Account (PPF)

(i) If the minimum deposit of Rs. 500 is not made in any financial year, the PPF account will become discontinued.

(ii) Loan/withdrawal facilities are not available on discontinued accounts.

(iii) A discontinued account can be revived by the depositor before the maturity of the account by depositing the minimum subscription amount of Rs. 500 for each defaulted year, along with a default fee of Rs. 50 for each defaulted year.

(iv) The total deposit in a year shall include deposits made in respect of the years of default in previous financial years.

Interest

(i) The interest rate applicable to PPF accounts is notified by the Ministry of Finance on a quarterly basis.

(ii) Interest is calculated for the calendar month based on the lowest balance in the account between the close of the fifth day and the end of the month.

(iii) Interest is credited to the account at the end of each financial year.

(iv) Interest is credited to the account at the end of each financial year where the account stands at the end of the financial year (e.g., in the case of transfer of the account from a bank to a post office or vice versa).

(v) The interest earned is tax-free under the Income Tax Act.

PPF Interest Rates of Different Institutes

Interest rates will be the same across India and that is 7.1 % per annum (compounded yearly) from 01/04/2023.

Loan Features of PPF Account

(i) A loan can be taken after the expiry of one year from the end of the financial year in which the initial subscription was made.

(ii) A loan can be taken before the expiry of five years from the end of the year in which the initial subscription was made.

(iii) The loan amount can be up to 25% of the balance to the credit at the end of the second year immediately preceding the year in which the loan is applied.

(iv) Only one loan can be taken in a financial year.

(v) A second loan cannot be provided until the first loan is repaid.

(vi) If the loan is repaid within 36 months of taking the loan, the loan interest rate is 1% per annum.

(vii) If the loan is repaid after 36 months of taking the loan, the loan interest rate is 6% per annum from the date of loan disbursement.

Withdrawal

(i) A subscriber can make one withdrawal during a financial year after five years, excluding the year of account opening.

(ii) The amount of withdrawal can be up to 50% of the balance at the credit at the end of the fourth preceding year or at the end of the preceding year, whichever is lower.

Maturity of PPF Account

(i) The PPF account matures after 15 financial years, excluding the year of account opening.

(ii) Upon maturity, the depositor has the option to take the maturity payment by submitting the account closure form along with the passbook at the concerned post office.

(iii) The depositor can also retain the maturity value in the account without making further deposits. The PPF interest rate will be applicable, and the payment can be taken at any time or one withdrawal can be taken in each financial year.

(iv) The account can be extended for a further block of 5 years and so on (within one year of maturity) by submitting the prescribed extension form at the concerned post office. Discontinued accounts cannot be extended.

(v) In an extended account with deposits, one withdrawal can be taken in each financial year, subject to a maximum limit of 60% of the balance credit at the time of maturity in the block of 5 years.

Premature Closure of PPF Account

(i) Premature closure is allowed after 5 years from the end of the year in which the account was opened, subject to certain conditions such as life-threatening disease of the account holder, spouse, or dependent children, higher education of the account holder or dependent children, or change of resident status to NRI.

(ii) At the time of premature closure, 1% interest shall be deducted from the date of account opening or date of extension, as applicable.

(iii) The account can be closed on the above conditions by submitting the prescribed form along with the passbook at the concerned post office.

Death of Account Holder

(i) In the case of the death of the account holder, the account shall be closed, and the nominee or legal heir(s) shall not be allowed to continue deposits in the account.

(ii) At the time of closure due to death, the PPF rate of interest shall be paid till the end of the preceding month in which the account is closed.

FAQs

Q: What is Public Provident Fund Account (PPF)?

A: PPF stands for Public Provident Fund, which is a long-term savings scheme offered by the Indian government. It is designed to help individuals build a retirement corpus and enjoy tax benefits.

Q: Who is Eligible to Open a PPF Account?

A: Any resident Indian individual, including salaried employees, self-employed individuals, and even minors through a guardian, can open a PPF account.

Q: Where Can I Open a PPF Account?

A: PPF accounts can be opened at designated banks (both public and private) and selected post office branches across India.

Q: What is the Minimum and Maximum Deposit Allowed in a PPF Account?

A: The minimum deposit required in a PPF account is Rs. 500 per financial year, while the maximum deposit allowed is Rs. 1.5 lakh per financial year.

Q: What is the Lock-in Period for a PPF Account?

A: The lock-in period for a PPF account is 15 years. However, partial withdrawals and loans are allowed from the 7th year onwards.

Q: Can I Extend the Maturity Period of My PPF Account?

A: Yes, you can extend the maturity period of your PPF account in blocks of 5 years after the completion of the initial 15-year period.

Q: Is the Interest Earned on a PPF Account Taxable?

A: No, the interest earned on a PPF account is tax-free.

Q: Can I Take a Loan against My PPF Account?

A: Yes, you can avail a loan against your PPF account from the 3rd year up to the 6th year of account opening.

Q: Are PPF Deposits Eligible for Tax Deductions?

A: Yes, deposits made in a PPF account are eligible for tax deductions under section 80C of the Income Tax Act.

Q: Can NRIs (Non-Resident Indians) Open a PPF Account?

A: No, NRIs are not eligible to open a new PPF account. However, if an individual becomes an NRI after opening a PPF account, they can continue to hold the account until maturity but cannot extend it.