The Public Provident Fund (PPF) is a scheme which offers an investment option which gives decent returns along with benefits on income tax, as per The Income Tax Act.
This article discusses the following topics:
Public Provident Fund (PPF) is a long-term investment scheme backed by the Indian government. It provides investment options at attractive rates and provides financial security in its returns. These returns are completely exempted from tax under the Income Tax Act, section 80C. PPF accounts can be opened at banks, post-offices, or online.
Features of PPF include:
- Risk-free rate of interest at 8% which changes with time
- Compounded rate of interest on PPF annually
- Tax deductions at Rs. 1.5 lakh investment in PPF account
- Long-term investment for minimum 15 years
- Loans available against PPF balance between 3rd and 6th financial year
- Low investment deposit amount from Rs. 500 to Rs. 1.5 lakh per financial year
- PPF Account extension in a block period of five years after maturing
- Partial Withdrawal facility is available from 7th year of investment
PPF comes under the tax basket of EEE, i.e. Exempt, Exempt, Exempt. For a maximum amount of Rs. 1.5 lakh per annum, the investment is exempted from tax. Both the interest earned and amount received after maturity is exempted from income tax, including PPF accounts of spouse and children.
The Central government sets the interest rates for PPF on per annum basis. The current interest rate in the financial year 2018-19 is 8%, which has increased from 7.8% in the previous year. The following table enlists the interest rates of previous financial years:
|Financial Year||Interest rate (Per Annum)|
|2018 – 2019||8.00%|
|2017 – 2018||7.80%|
|2016 – 2017||8.00%|
|2015 – 2016||8.70%|
|2014 – 2015||8.70%|
|2013 – 2014||8.70%|
|2012 – 2013||8.80%|
|2011 – 2012||8.60%|
|2010 – 2011||8.00%|
|2009 – 2010||8.00%|
|2008 – 2009||8.00%|
|2007 – 2008||8.00%|
|2006 – 2007||8.00%|
|2005 – 2006||8.00%|
A guardian or parent can open the PPF account of their child. However, only one PPF account can be opened for one minor. Grandparents cannot open their grandchildren’s PPF account if the child’s parents are still alive. For age proof, birth certificate of the minor is required at the time of opening PPF account.
The following list shows all forms related to PPF account and the purpose they serve:
|Form A||Opening a PPF account|
|Form B||Making deposits to PPF account and repaying loans against it|
|Form C||Making partial withdrawals from PPF account|
|Form D||Applying for loan against PPF account|
|Form E||Adding a nominee for PPF account|
|Form F||Changing nomination for PPF account|
|Form G||Claiming funds in PPF account by a nominee or legal heir|
|Form H||Extending maturity of PPF account (1 or 5 years)|
Only one PPF account can be opened by one individual. The following persons are the only entities eligible for opening a PPF account:
- Indian Resident
- NRIs who owned PPF account as Indian residents before going abroad can operate it for 15 years or till maturity without any extension
- Minors based on legal age proof
- HUFs that already had a PPF account before 13th May 2005 can operate it till 15 years or maturity, whichever is earlier, without any extension.
The documents required to open a PPF account are:
- Form for opening PPF account which can be availed from the bank branch or Indian Post portal
- Identity Proof including either PAN, driving license, voter ID, passport, or Aadhaar
- Address Proof including either telephone bill, electricity bill, ration card, or Aadhaar
- Two recent passport sized photographs
- A pay-in slip from the bank branch for transferring amount to PPF account, or signed cheque against the PPF account
- Birth certificate as age proof in case of minor
All these documents should be self-attested and should be taken along with the original documents. Aadhaar should be linked to the bank of the customer.
To transfer amount to such a PPF account, the individual may login to the Net-banking portal and select the account from which fund is to be transferred. The registered personal details can be linked with the bank and the PPF account. All details including address and nomination card are required to be verified.
A PPF account can be closed prematurely only after it has completed 5 years. The purpose for closing it may include medical treatment of self or family members and higher education of only the holder of PPF account. Closing the account prematurely will come with an interest penalty at the rate of 1%.
PPF account is transferable to any other bank, branch, or post office as per the request of PPF account holder, with no service charges. The following steps may be followed for account transfer:
Step 1 – Go to the bank or post office which holds the PPF account ask for the form for transferring the account and fill it
Step 2 – A certified copy of the account, the account opening application form, nomination form, and signature along with a cheque or demand draft for the PPF account outstanding amount will be forwarded by existing bank to the new bank branch specified by customer
Step 3 – Upon receiving these documents, the new bank branch will inform the customer and ask for submission of new PPF account opening form along with passbook of old PPF account. The customer may also submit a new nominee.
Step 4 – The transferred PPF account will show under PPF account link in the net-banking login id after 2 weeks. If it does not show, contact the local bank branch or post office.
To keep the PPF account active, money should be deposited or invested in it each year with a minimum amount of Rs. 500 or else it will be considered inactive. Inactive PPF account cannot avail loan facilities.
Reactivation of PPF account requires a penalty of Rs. 50 to be paid for every year of being inactive along with the cumulative amount for each inactive year.