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Public Provident Fund (PPF) India, Interest, Benefit, Withdrawals, Deposit Etc

Updated on: 15 Mar, 2024 12:48 PM

The Public Provident Fund (PPF) stands out as one of India's most popular investment options. Its popularity owes to various factors such as assured returns, tax advantages on investments, and tax-free returns. It also helps individuals accumulate retirement funds in the long-term.

In this blog, we'll delve into the various aspects of Public Provident Fund, covering aspects like tax benefits, maturity and extension regulations, eligibility criteria, interest rates and calculations, contribution guidelines, and more.

Public Provident Fund (PPF)

The Public Provident Fund (PPF) is a government-supported savings scheme offering numerous advantages. It stands as one of India’s leading and tax-effective savings plans, aiming to foster savings habits and offer financial stability to individuals.

Functioning as a long-term investment, PPF reaches maturity after 15 years, ensuring guaranteed returns. The government periodically reviews its interest rate, potentially adjusting it every quarter. Presently, the interest rate stands at 7.1%.

Public Provident Fund is simply defined as Exempt, Exempt, and Exempt (EEE) as it offers exceptional tax benefits to its subscribers under Section 80C. This popular long-term investment scheme was launched by the Government of India, offering financial security with reasonable interest rates and returns that are fully exempt from tax.

Under the PPF scheme, the subscriber is assured a guaranteed return every year on the amount deposited by them. Earlier, the interest rate was revised every year. However, now, to keep in line with the market, it is set every quarter, offering a chance to yield high returns.

Tip: If you are planning to open a PPF account, ensure to deposit before the 5th of every month. The catch here is that the interest on PPF deposits is calculated between the fifth and the end of the month. Therefore, if you deposit the amount before the 5th, you will get the maximum amount of interest on your investment.

How to Open a PPF Account?

A PPF account can be started at any authorized bank. The documents required for a PPF account includes:

  • PPF Form A, available at any bank or Indian Post Office.
  • Any ID proof: For online applications, necessary documentation and submission of application remain the same.
  • Any address proof from the following:
    • Aadhaar Card
    • Telephone Bill
    • Ration Card
    • Electricity Bill
  • Two current passport-size photographs.
  • A signed cheque in favor of your PPF account or pay-in-slip at the bank branch.
  • In the case of a minor, a birth certificate will also be required as age proof.

Important Note: All the documents have to be self-attested, and originals must be taken along while opening the account.

How to Open a PPF Account Online?

To open a PPF account online, you need access to your bank account's net banking facility. Follow these steps to open your PPF account:

  • Step 1: Log in to your bank account using net banking or mobile banking.
  • Step 2: Choose the option to open a PPF account.
  • Step 3: Fill in the required details, including the investment amount, deposit frequency, and other relevant information.
  • Step 4: Provide nominee details. If you prefer not to add a nominee, select "No."
  • Step 5: Some banks offer the option to set up standing instructions for automatic PPF contributions from your account.
  • Step 6: Review your details and proceed to the next step.
  • Step 7: You will receive an OTP. Enter the OTP received and proceed.

Once you validate the OTP, your PPF account will be created instantly, and you'll receive your PPF account number. Additionally, you'll receive confirmation via email from the bank to your registered email ID.

What are the Features of a PPF Account?

The PPF account stands as a well-liked long-term savings scheme in India, offering several features such as tax benefits, a fixed tenure, and flexible deposit amounts. Let's delve into some of its key aspects:

  • Investment Tenure: PPF entails a lock-in period of 15 years, with the option for extending maturity beyond this timeframe. This extension is calculated from the end of the financial year of the initial investment, allowing for continued benefits for up to 20, 25, or even 30 years.
  • Risk Factor: Being a government-guaranteed scheme with fixed returns, PPF is widely perceived as a secure investment with minimal risk.
  • Nomination Feature: PPF accounts offer the option to nominate one or more individuals, providing added security and flexibility.
  • Deposit Methods: Deposits into a PPF account can be made both online and offline. Offline deposits can be made via cash, cheque, or demand draft, while online transfers are possible through net banking or mobile banking services.
  • Deposit Frequency: There are no restrictions on the frequency of deposits, allowing for multiple installments. However, making at least one contribution per year is essential to maintain an active PPF account.
  • Opening Balance: The minimum opening balance for a PPF account is Rs. 100, with a requirement to deposit at least Rs. 500 per financial year to keep it operational.
  • Investment Limits: While the minimum investment amount is Rs. 500 per financial year, the maximum limit stands at Rs. 1.5 lakh per financial year.

What are the Limitations of PPF?

Before investing, it's important to be aware of the limitations associated with PPF accounts. Let's explore these limitations:

  • Mandatory Lock-in Period: PPF investments come with a mandatory lock-in period of 15 years, which may not be suitable for investors seeking short-term options with guaranteed returns, such as FDs.
  • Moderate Returns: Returns from PPF may not outpace inflation significantly. For instance, the current interest rate stands at 7.1%, slightly above India’s average inflation rate of 6% over the last decade.
  • Maximum Investment Limit: There's a cap on annual investments, set at Rs. 1.5 lakh per financial year. This limitation may hinder individuals aiming to build a larger corpus through PPF.
  • Withdrawal Restrictions: Investors can only withdraw from their PPF accounts starting from the seventh financial year from the account opening date, imposing limitations on withdrawal flexibility.
  • Eligibility Criteria: Only Indian residents are eligible to open PPF accounts. Non-resident Indians (NRIs), Hindu Undivided Families (HUFs), and trusts are ineligible to open PPF accounts.

Eligibility Criteria to Open a PPF Account

  • Only an Indian citizen can open a PPF account.
  • Every person is allowed to open only one PPF account in their name.
  • PPF account for minors can be opened by submitting legal age proof.
  • Individuals who had opened a PPF account while they were residents of India can continue the account for 15 years with no option for extension.
  • Hindu United Families cannot open a PPF account after 13th May 2005. However, all PPF accounts before this date can be successfully operated until the maturity period of 15 years (no extensions).

What is the Interest Rate in a PPF?

The interest rate in PPF (Public Provident Fund) is determined by the government every quarter based on the prevailing market rates. As of now, the interest rate is a PPF is 7.1% p.a., compounded annually. This means that the interest earned on the PPF balance is added to the principal amount at the end of each year and earns interest in the subsequent years. The interest rate in a PPF may vary from time to time, however, it is generally higher than the inflation rate and most bank fixed deposits.

Important Points to Note When Opening a PPF Account

  • As per the Indian law, an individual is allowed to open only one PPF account.
  • The minimum deposit is Rs.500 as initial deposit amount.
  • NRIs can not open a PPF account.
  • You can visit the nearest Bank branch and give the request for nomination updating/change whenever required.
  • Customers need to visit the branch to get the passbook for the PPF account opened online.

List of Banks Where you Can Open a PPF Account

PPF is a government savings scheme offered by banks and post offices. Some banks do not offer PPF accounts. You can find a list of banks that offer PPF accounts below.

  • Axis Bank
  • ICICI Bank
  • HDFC Bank
  • State Bank of India and its subsidiaries
  • PNB
  • Canara Bank
  • Indian Bank
  • Bank of India
  • Bank of Baroda
  • Central Bank of India
  • Union Bank of India
  • Indian Overseas Bank

How Does an Account Become Inactive?

You have to deposit a minimum ₹500 every financial year into your PPF account, or it will become inactive. An inactive account still earns interest until it matures. However, you cannot take loans against your PPF account if it is not active.

How to Revive an Inactive PPF Account?

Revival of inactive accounts means reactivation. If your PPF account has been deactivated, then you can revive it by submitting a written application where the account is opened. Along with the application, you are required to pay a penalty of Rs. 50/- for each year of default and Rs. 500/- for each year as an arrear payment.

After the application and cheque deposit is complete, the bank or post office branch will review your records. If the lock-in period of 15 years is complete, the account can’t be reactivated.

What is Attachment Immunity?

The amount available in the PPF account of any person is not liable for attachment by any court in India. In case you are facing any non-compliance on a financial commitment like the failure of repayment of a loan etc., in that case, the court may order to freeze your assets, but the balance available in the PPF account cannot be attached by the court. This was a positive move taken by the government to encourage investment in PPF accounts.

Benefits of a PPF Account

Investments are usually made with the purpose of growing capital on finance or to acquire tax benefits. Mentioned below are some of the benefits a PPF scheme offers:

Small Investment, Good Returns:
PPF account is a real lifesaver when it comes to small investments. It has a minimum limit of Rs 100 per transaction and allows up to 12 transactions per year. You can also add a lump sum amount at any time in a financial year, provided it is within the limits of your account.

Flexible Installments:
With a PPF account, you get the flexibility of investment. You can invest with as little as Rs 500 to up to Rs 1,50,000 in a year. Not only in investment, but it also allows you flexibility on maturity. Once the account has matured after 15 years, you can simply withdraw the amount, or you can extend it for a further five years.

Easy Loan Option:
PPF account allows you to take a loan after two years. You can withdraw up to 25% of the previous year’s balance from 3rd year onwards. A secure credit is available from 3rd year to 6th year. Once the loan is taken, it can be repaid within 36 months, and the rate of interest is charged at the rate of 1%.

Numerous Tax Benefits:
The best thing about earnings from the PPF account is that it is completely tax-free. All the deposits you make in your PPF account are eligible for tax deductions under Section 80C. So, you can save up to Rs 1,50,000 per year. Not only the interest that is earned yearly but also the total amount on maturity is completely tax-free. So, it’s an overall win-win game.

Risk-free Returns:
If you are looking for risk-free, government-backed investment plans, PPF would be the ideal deal. The money you invest is completely secure, and it also fetches you a reasonable rate of interest compounded annually. It has a facility of partial withdrawals and loans. It is one of the most recommended schemes and has been trusted by people for many years.

PPF is a great option for saving taxes as it allows a deduction of upto Rs1.5 lakhs under section 80C. Along with tax savings, it also fosters forced investments and helps in creating wealth. Having said that, it is also important to note that this is just one tax-saving investment. There are various such tax-saving investment options that you can explore. If you are looking to save more taxes or have any tax-related queries, you can consider seeking professional guidance. Get tax consultancy now!

Public Provident Fund (PPF)

Frequently Asked Questions

Q- How many Public Provident Fund (PPF) accounts can be opened?

Unfortunately, only one PPF account can be opened under an individual’s name. However, you can open and operate a PPF account on behalf of a minor until he/she attains maturity.

Q- Is it mandatory to have a PAN number for opening a PPF account?

Opening a PPF account is like opening any other bank account. You must have a PAN card number. However, if you do not have one or it is still in process, you can declare it in Form No. 60 and get your new PPF account opened!

Q- Is there a provision for opening a joint PPF account?

PPF is an individual account, and it cannot be opened in the name of more than one person.

Q- Can a PPF account be opened in a minor’s name?

Yes, any of the two parents or a legal guardian of the minor can open a PPF account for them. The parents or guardians will be required to submit their documents along with the birth certificate of the minor.

Q- What is the minimum and maximum amount that can be invested under the Public Provident Fund (PPF) Scheme?

You can invest a minimum of 500 rupees to a maximum of 1,50,000 rupees in one financial year in the PPF account.

Q- How many deposits can be made in a PPF account in one financial year?

Though you can make more than one deposit in a month, the total number of deposits cannot exceed 12 in a financial year.

Q- Am I eligible to claim the benefits of section 80C, if I contribute to my parents PPF account?

Unfortunately, you cannot claim tax benefits in this case. Though tax laws permit you to claim 80C tax benefits for deposits into your spouse’s account, the same decree does not apply in the case of parents, siblings, or relatives.

Q- What is the maturity timeline of a Public Provident Fund (PPF) account?

A Public Provident Fund (PPF) account matures post-completion of 15 years from the end of the year in which it was opened. Fifteen years is the locking period of any PPF account.

Q- What is the difference between withdrawals and loans against PPF Account?

Withdrawal is a simple drawing of a certain amount from your account that you are not liable to pay back. However, when you are applying for a loan against your PPF account, you are responsible for paying the loan amount along with interest.

Q- To what limit I can take a loan against my PPF Account?

You can apply for a loan up to 25% of your total amount collected by the end of the immediate 2nd preceding year.

Q- Can PPF account be closed or terminated before maturity?

While earlier there was no provision for premature closure or termination of the PPF account except in the case of death, it is now possible under certain circumstances.

According to the PPF amendment scheme 2016, closure or termination of a PPF account is possible, if the account holder has completed five financial years, where:

  • The investment is required for the treatment of severe illness or life-threatening diseases of the Account holder’s spouse, dependent children, or parents. The account holder will be required to submit supporting documents from a competent medical authority.
  • The investment is needed for higher education. The account holder can close or terminate the account on the submission of documents and fee bills confirming their admission to a recognized university of higher education in India & abroad.

Q- Is it compulsory to withdraw my savings amount at the end of 15-year tenure?

No, it is not binding to withdraw the investment amount on maturity. If you wish to extend the tenure of the PPF account, it can be continued for five years as five years of extension is available.

The extensions can last with or without any deposits. However, you will continue to receive interest on the amount even during the extension period.

Q- What happens in case of failure of deposit in one or more Financial Years?

A penalty of Rs. 50 will be charged every year if you fail to deposit the minimum amount of Rs. 500.

Q- What if I wish to transfer my existing PPF account maintained with another bank/post office to the Bank of my choice? Is it possible?

Yes, your PPF account can be transferred to any bank of your choice and it will be considered as a continuing account.

Q- Will my PPF account number change, if I transfer it from a Bank/Post Office to another Bank/Post Office?

Yes, your PPF account number will change if you transfer your account from one bank to another.

Q- In case of an untimely death before the maturity period, what will happen to the savings in my PPF account?

Your legal heirs or nominees can claim the amount of your PPF account.

Q- In the event of the death of a guardian, what happens to the minor’s PPF account?

Well, in such cases, the minor is treated as a benefactor. The amount in the PPF account only becomes payable on the death of the benefactor as per Section 8 of the PPF Act.

However, the account of the minor remains functioning and a new account need not be opened. The surviving guardian or a custodian appointed by an expert court may continue the minor’s PPF account after submitting the required guardianship certificate.

CA Abhishek Soni
CA Abhishek Soni

Abhishek Soni is a Chartered Accountant by profession & entrepreneur by passion. He is the co-founder & CEO of Tax2win is amongst the top 25 emerging startups of Asia and authorized ERI by the Income Tax Department. In the past, he worked in EY and comes with wide industry experience from telecom, retail to manufacturing to entertainment where he has handled various national and international assignments.