Public Provident Fund (PPF)
This page provides all the details you need to know about the Public Provident Fund (PPF) scheme.
Table of Contents
What is PPF?
PPF stands for Public Provident Fund.
PPF is a savings scheme established by the Central Government of India.
It is a safe, tax deductible investment with attractive returns that are fully exempted from Income Tax. It is a long term savings scheme.
Features
Safe investment
Guaranteed returns
Backed by Central Government
Attractive Tax benefits
Long term savings scheme
Account can't be attached to any claim in case of debt or liability. So, the money is yours
Income Tax Benefits
Effective 01-Apr-2020, the income tax benefits will depend upon whether you choose old tax system or new tax system.
Old Tax System:
Deposit amount up to Rs.1,50,000 in a financial year qualify for tax deduction under Section 80C of Income Tax Act.
Interest earned and withdrawals are completely tax free.
Maturity amount is tax free.
The amount in PPF is totally exempt from wealth tax.
New Tax System:
No income tax benefits. The deposit amount won't get any deduction benefit under Section 80C of Income Tax Act
Interest earned and withdrawals are completely tax free.
Maturity amount is tax free.
The amount in PPF is totally exempt from wealth tax.
Eligibility
An individual who is a resident of India can open a PPF account for himself.
Also, he can open another PPF account on behalf of a minor child or a person of unsound mind of whom he is the guardian.
Minor will operate the account himself when he becomes major.
Individual can have only one PPF account under his name either in Post Office or Bank.
No joint account is allowed.
Individuals having General Provident Fund or Employee Provident Fund can also open a PPF account.
NRI
NRI (Non Resident Indian) are not eligible to open a new PPF account.
But, if a resident having a PPF account becomes NRI, then he can choose one of the following two options.
he can continue the account till maturity on a non-repatriation basis. No extension is allowed after maturity
he can pre-maturely close the account subject to certain conditions. Please check Pre-mature Closure section for more details
HUF
Effective 13-May-2005, HUF (Hindu Undivided Family) member can't open a new PPF account.
Account opened before 13-May-2005 can be continued till maturity.
But, the account can't be extended after 13-May-2005.
Where to Open the Account?
PPF account can be opened at
State Bank of India or its Associates
Head Post Office
Any Nationalised banks
Some Private sector banks
Deposit Amount
Minimum deposit required per financial year is Rs. 500.
Maximum deposit allowed per financial year is Rs. 1.5 Lakhs.
Deposit amount should be in multiples of Rs. 50.
Deposits can be made in one lump sum or in installments in a financial year.
There is no limit on the number of installments in a month or financial year. They can be anytime during the financial year.
The maximum deposit limit is for both individual self account and account of minor of whom he is the guardian, taken together.
Best Time to Deposit
With PPF, remember the financial year (1st April to 31st March) concept for deposits.
Amount deposited at the beginning of the financial year earns more interest than the amount deposited towards the end of the financial year.
If you are planning to deposit yearly, then 1st to 5th of April
If you are planning to deposit monthly, then 1st to 5th of every month
If you are planning to deposit quarterly, then 1st to 5th of April, July, October & January
If you are planning to deposit half-yearly, then 1st to 5th of April & October
In-active Accounts
PPF account will become in-active if you don't deposit the minimum amount during any financial year.
You can re-activate the account by paying a penalty of Rs. 50 for each financial year of default and the minimum deposit amount of Rs. 500 for each financial year of default.
Even if you don't re-activate, the in-active account will continue to earn interest as per the interest rate applicable to scheme from time to time till maturity.
The in-active accounts won't qualify for loan or partial withdrawals.
If the account becomes in-active, then you are not allowed to open another PPF account till you close the in-active account after the maturity period.
Interest
Interest is calculated at the end of every calendar month.
Monthly interest is calculated on the lowest balance of the account between the close of 5th day and the end of the month.
Interest Rate (%)
The current annual interest rate is 7.10%.
Annual interest rate is not fixed and it is determined by the Central Government from time to time.
From 01-Apr-2016 onwards, interest rate for this scheme has been announced by the Government on a quarterly basis. Note that this used to be on a yearly basis earlier.
Compounding Frequency
PPF account compounds annually.
Interest earned every month during the financial year will be credited to the account at the end of the financial year (i.e, on 31st March).
Maturity
PPF maturity period is 15 full financial years.
You can withdraw the entire balance any time after the completion of 15 financial years from the end of the financial year in which the account was opened.
PPF account can be extended even after the maturity period.
The extension can be with deposit or without deposit.
If you want to extend, then you can do so before one year from the maturity date.
Extension Without Deposits
The account holder can continue to withdraw every financial year.
One withdrawal is allowed per financial year.
There is no limit on the withdrawal amount.
The amount remaining in the account will continue to earn interest (at the PPF interest rate) till it is fully withdrawn.
Once you choose to extend without deposits, you can't change the account to "with deposits".
Extension with Deposits
The extension period can be for a block of 5 financial years. There is no limit on the number of blocks.
The deposit limits during the extension are same as that of the PPF account.
During the extended period, one withdrawal is allowed per financial year.
The total withdrawal limit during the extended 5 year block should not exceed 60% of the account balance at the start of the extension period.
Loan
Loan facility is available from 3rd financial year to 6th financial year of opening the account.
You are eligible for loan if your account is active. In-active accounts won't qualify for loan.
The eligible loan amount is 25% of the account balance at the end of 2nd financial year immediately preceding the year in which the loan is applied for.
The loan principal amount should be re-paid within 3 years from the first day of the month following the month in which the loan is sanctioned.
The repayment of principal amount can be made in one lump sum or in a maximum of 36 monthly installments.
Once the principal amount is fully repaid, then the loan interest need to be repaid within 2 monthly installments.
The interest will be at the rate of 1% per annum above the applicable PPF interest rate from the 1st day of the month following the loan sanctioned to the last day of the month of last installment.
If the loan principal is partly paid or not paid within the 3 years time, then the outstanding loan principal amount will be charged at 6% per annum above the applicable PPF interest rate from the 1st day of the month following the loan sanctioned to the last day of the month in which the loan is finally repaid.
You are not allowed for another loan when you already have a loan and it is not fully repaid.
You are eligible for only one loan in a financial year even if you have already repaid your existing loan.
Withdrawal
Partial withdrawal is allowed from the 7th financial year of opening the account.
Only one withdrawal is allowed per financial year.
You are eligible for withdrawal if your account is active. In-active accounts won't qualify for withdrawal.
Withdrawal limit is 50% of the account balance standing at the end of 4th financial year immediately preceding the financial year of withdrawal OR at the end of preceding financial year, whichever is lower.
If you had availed any loan, then the unpaid loan amount will be deducted from the withdrawal amount.
Any amount withdrawn is not repayable.
Pre-mature Closure
You can close PPF account before Maturity. But, this will be allowed in the following genuine situations.
Medical treatment of life threatening disease to you, your spouse, dependent children or parents. You should produce supporting documents and medical reports from the treating medical authority
Your's or your dependent children' higher education. You should produce documents and fee bills of admission in a recognised institute of higher education in India or abroad
If your residency status changes. That is, if you become the Permanent Resident or Citizen of another country. You should produce a copy of Passport and Visa or Income Tax returns
This pre-mature closure is allowed only for the accounts that has completed 5 financial years from the end of the financial year in which the account was opened. It means that pre-mature closure is allowed from the 7th financial year of account opening.
There is a penalty for pre-mature closure of PPF account. If you close the account pre-maturely, then the interest will be calculated at 1% lesser than the interest rate applicable to the scheme from time to time since the date of account opening.
For example, if the interest rate for a quarter is 8.5%, then you will earn interest for 7.5% only for that quarter.
Nomination
Nomination facility is available under PPF scheme.
The account holder can nominate one or more persons to receive the amount standing to his credit in the event of his death.
Nomination can't be made on the account opened on behalf of minor.
The accout holder can't nominate a trust as his nominee.
A nomination made by the account holder can be cancelled or changed by a fresh nomination.
If the nominee is minor, then the account holder can appoint any person to receive the amount in the event of his death during the minority of the nominee.
If the nomination is not in force at the time of death of the account holder, then the amount standing to his credit can be paid to the legal heirs of the deceased.
Account Transfer
PPF account can be transferred from
one bank to another bank
one post office to another post office
one bank to another post office and vice versa
PPF account can't be transferred from one person to another person.