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

Latest Update on PPF effective from 1 Oct, 2024

1. Interest Rate for Minor PPF Accounts

Under the revised rules, minor PPF accounts will continue to earn interest at the Post Office Savings Account (POSA) rate of 4% until the minor reaches the age of 18. The 15-year maturity period for these accounts will begin only when the minor becomes an adult. In simpler terms, for irregular minor PPF accounts, the POSA interest rate will apply until the account is regularized when the account holder turns 18. The 15-year maturity clock will start from the minor’s 18th birthday.

2. Irregularity Due to Multiple PPF Accounts

Account holders with more than one PPF account will face changes under the new rules. Only the primary account will earn interest at the PPF scheme rate, as long as the total yearly investment does not exceed ₹1.5 lakh. All additional PPF accounts will be considered irregular and will not accrue any interest. If the combined balance across all accounts is less than ₹1.5 lakh, the excess balance from secondary accounts will be transferred to the primary account. Any remaining balance in irregular accounts will be refunded without interest. In essence, only one PPF account per individual will be eligible to earn interest, while others will be non-earning.

3. PPF Accounts for NRIs

Effective from September 30, 2024, NRIs will no longer earn interest on their PPF accounts. However, existing NRI account holders can retain their PPF accounts until maturity. They will not be allowed to extend the account beyond the initial 15-year period. For NRIs with PPF accounts opened under the Public Provident Fund Scheme (1968), where residency status was not previously required on Form H, the account will earn interest at the POSA rate until September 30, 2024. After that date, these accounts will stop earning interest entirely.

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% (Q3 of FY 2024-25) and the deposits can be made up to 1.50 lakh INR in a financial year.

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.

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).

Documents Required 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:
  • Aadhaar Card
  • PAN Card
  • Driving License
  • Passport
  • Voter ID
  For online applications, necessary documentation and submission of applications 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?

You can open a PPF account at a Post Office or any nationalized bank such as State Bank of India or Punjab National Bank. Some private banks like ICICI, HDFC, and Axis Bank also offer this facility.

Required Documents:

• Completed account opening application form
• KYC documents (Aadhaar, Voter ID, Driving license, etc.)
• Residential address proof
• Nominee declaration form
• Passport size photograph

Opening a PPF Account Online:

• Log in to your bank account via internet or mobile banking.
• Select the "Open a PPF Account" option.
• Choose "Self Account" for your own account or "Minor Account" for a minor's account.
• Fill out the application form with the necessary details.
• Enter the annual deposit amount.
• Submit the application. Enter the OTP sent to your registered mobile number.
• Your PPF account will be created instantly, and you will receive an email confirmation with your account number.

Opening a PPF Account at a Post Office:

• Obtain an application form from your nearest post office or online.
• Fill out the form and submit it with the required KYC documents and a passport-size photograph.
• Make the initial deposit (between Rs. 500 and Rs. 1.5 lakh per financial year).
• Once processed, you will receive a passbook for your PPF account.

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.

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

Loan Against PPF

• Eligibility: You can take a loan against your PPF account after one year from the date of the initial deposit.
• Loan Amount: You can borrow up to 25% of the total available amount in your PPF account.
• Second Loan: A second loan is available only after the first loan is fully repaid.
• Interest Rates: Loans repaid within 36 months have an interest rate of 1% per annum. Loans not repaid within 36 months have an interest rate of 6% per annum.

PPF Amount Withdrawal

• Full Withdrawal: You can fully withdraw the PPF account balance only after 15 years, upon maturity. At this time, you can withdraw the entire amount along with accrued interest and close the account.
• Partial Withdrawal: Partial withdrawals are allowed from the 6th year onwards (after completing 5 years). You can withdraw up to 50% of the amount in the account at the end of the 4th year or the end of the preceding year, whichever is lower. Withdrawals can be made only once per financial year.

Procedure for Withdrawal from PPF

• Obtain Form: Get the withdrawal application form (Form 3/Form C) from the bank or post office where you opened the PPF account.
• Fill the Form: Complete the application form with the required information.
• Submit the Form: Submit the filled form to the concerned branch of the bank or post office where your PPF account is held.

PPF Withdrawal Form (Form 3/Form C)

• Section 1: Declaration: Provide your PPF account number, the amount you wish to withdraw, and the number of years since the account was opened.
• Section 2: Office Use: This section includes:
  • Date the PPF account was opened.
  • Total balance in the PPF account.
  • Date of the last withdrawal.
  • Total withdrawal amount available.
  • Amount sanctioned for withdrawal.
  • Date and signature of the authorized person (usually the service manager).
• Section 3: Bank Details: Provide the bank details where the money is to be credited or the bank in whose favor the cheque/demand draft is to be issued. Include a copy of the PPF passbook with your application.

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 eCA Now!