Public Provident Fund

• The Public Provident Fund (PPF) is a savings-cum-tax-saving instrument in India, introduced by the National Savings Institute of the Ministry of Finance in 1968.
• The main objective of the scheme is to mobilize small savings by offering an investment with reasonable returns combined with income tax benefits.
• The scheme is fully guaranteed by the Central Government.
• Balance in the PPF account is not subject to attachment under any order or decree of court under the Government Savings Banks Act, 1873.
• However, Income Tax & other Government authorities can attach the account for recovering tax dues.
• The Government introduced the 2019 Public Provident Fund Scheme on 12 December 2019.
• The introduction of the 2019 scheme resulted in the rescinding of the earlier 1968 Public Provident Fund Scheme.

Features

• The public provident fund is established by the central government and can be voluntarily opened with any nationalized bank, selected authorized private bank or post office, in the name of individuals including minors.
• The minimum amount that can be deposited is Rs. 500.
• The current rate of interest is 7.1% per annum (as of April 2020).
• Interest received on the PPF account is tax-free.
• On maturity, the entire balance can be withdrawn.
• The maximum amount that can be deposited in an account every year is Rs. 150,000 at present.
• The interest earned on the PPF subscription is compounded annually.
• All the balance accumulated over time is exempted from wealth tax.

Deposite

• A minimum yearly deposit of Rs. 500 is required to open and maintain a Public Provident Fund (PPF) account.
• PPF account holders can deposit a maximum of Rs. 1.5 lacs (including those accounts where they are the guardian) per financial year.
• A guardian is required for PPF accounts opened in the name of minor children.
• Parents can act as guardians in PPF accounts of minor children.
• Deposits exceeding Rs. 1.5 lacs in a financial year will not earn any interest.
• The amount can be deposited in a lump sum or in installments per year, but not as a single deposit once a month.
• The Ministry of Finance, Government of India announces the rate of interest for PPF accounts every quarter.
• Interest is compounded annually and paid in March every year.
• Interest is calculated on the lowest balance between the close of the fifth day and the last day of every month.

Who Can Open

• Eligibility for opening a Public Provident Fund (PPF) account is limited to individuals who are residents of India.
• Resident individuals are entitled to tax-free returns on their PPF investments.
• Non-resident Indians (NRIs) were not allowed to open new PPF accounts as of August 2018, according to the Indian Ministry of finance (Department of Economic Affairs).
• However, NRIs are allowed to continue their existing PPF accounts up to their 15-year maturity period.
• An amendment to earlier rules that would allow NRIs to invest in PPF was proposed in the 2018 Finance Bill but has not yet been approved.
• In October 2017, the Ministry of Finance passed a notification regarding an amendment to the PPF scheme of 1968, which would deem a PPF account closed from the day a person became a non-resident, causing confusion.
• However, the Ministry issued an office memorandum in February 2018, keeping the above notification in abeyance until any further order on this matter, and thus the situation remained unchanged.

Opening of accounts: – Through all Branches, Mobile Banking & Internet Banking.

Duration of Scheme

• The original duration of the Public Provident Fund (PPF) scheme is 15 years.
• After the 15-year period, the PPF account can be closed, and the entire amount can be withdrawn.
• Alternatively, the subscriber can apply for an extension of 1 or more blocks of 5 years each.
• The extension can be with or without making further contributions.

PPF Maturity Option

• Once the maturity period of the Public Provident Fund (PPF) account is over, the subscriber has three options:
  1. Complete withdrawal of the entire amount.
  2. Extend the PPF account with no contribution: This option allows the subscriber to extend the PPF account after the completion of 15 years without putting any amount after the maturity. If the subscriber doesn’t take any action within one year of their PPF account maturity, this option is activated automatically. Any amount can be withdrawn from the PPF account if the option of extension with no contribution is chosen. The only restriction is that only one withdrawal is permitted in a financial year. The rest of the amount keeps earning interest.
  3. Extend the PPF account with contribution: With this option, the subscriber can put money in their PPF account after extension. If the subscriber wants to choose this option, they need to submit Form H in the bank where they have a PPF account within one year from the date of maturity (before the completion of 16 years in PPF). With this option, the subscriber can only withdraw a maximum of 60% of their PPF amount (amount which was there in the PPF account at the beginning of the extended period) within the entire 5-year block. Only a single withdrawal is permitted every year.

Loan

• Loan facility is available from 3rd financial year up to 5th financial year.
• The rate of interest charged on loan taken by the subscriber of a PPF account on or after 12 December 2019 shall be 1% more than the prevailing interest on PPF.
• Public Provident Fund Scheme, 2019 has reduced the interest spread to 1 (one) percent form earlier spread of 2 percent.
• Up to a maximum of 25 percent of the balance at the end of the 2nd immediately preceding year would be allowed as loan.
• Such withdrawals are to be repaid within 36 months.
• A second loan could be availed as long as you are within the 3rd and before the 6th year, and only if the first one is fully repaid.
• Once you become eligible for withdrawals, no loans would be permitted.
• Inactive accounts or discontinued accounts are not eligible for a loan.

Nomination

• Nomination facility is available in the name of one or more persons.
• The subscriber may define the shares of nominees.
• This allows for multiple nominees and allocation of specific shares to each nominee.

PPF Penalty/Revival/Nomination

• If a minimum contribution is not made in any year, the account will be deactivated.
• To reactivate the account, the bearer must pay a penalty of Rs. 50 for each inactive year and deposit Rs. 500 for each inactive year’s contribution.
• In case of the account holder’s death, the balance amount will be paid to the nominee or legal heir, even before the completion of 15 years.
• Nominees or legal heirs are not eligible to continue the account of the deceased.
• If the balance amount in the deceased account holder’s account is higher than Rs.150,000, the nominee or legal heir must prove their identity to claim the amount.

Withdrawals from PPF Account

• The lock-in period for a PPF account is 15 years.
• Pre-mature withdrawals can be made from the start of the seventh financial year.
• The maximum amount that can be withdrawn pre-maturely is equal to 50% of the amount that stood in the account at the end of 4th year preceding year or the end of immediately preceding year whichever is lower.
• After 15 years of maturity, the full PPF amount can be withdrawn tax-free, including the interest amount.

Pre-mature Closure of Account

• The Public Provident Fund (Amendment) Scheme, 2016 allows for premature closure of PPF account under certain circumstances.
• Premature closure is permitted after completion of 5 years for medical treatment of family members and for higher education of the PPF account holder.
• There is an interest rate penalty of 1% for premature closure.
• The GOI added new rules for premature withdrawal on 12 December 2019.
• In case of a change in residency, the account can be closed with the submission of Visa, passport or ITR.
• For higher education of self or dependents, the account may be closed with the submission of fee bills or admission confirmation letter.
• The rules remain the same in case of the demise of the account holder or medical condition of self or dependents.

Transfer of PPF Account

• The PPF account can be transferred to other branches, banks, or post offices free of charge upon request by the subscriber.
• The transfer process involves several steps:
  1. Request for the transfer form from the bank or post office branch where the PPF account is held.
  2. The existing bank will forward a certified copy of the account, the account opening application, nomination form, and specimen signature, along with a cheque/DD for the outstanding amount in the PPF account, to the new bank at the branch specified by the customer.
  3. Once the new bank receives these documents, the bank will inform the customer and request them to submit a new PPF account opening form along with the old PPF passbook and KYC documents. The customer can also provide nominations for the new account.
  4. After a few weeks, if the customer holds an internet banking facility with the bank, they should check that the transferred PPF account now shows up under the PPF account tab/link in their login. If not, they should inquire at the local bank branch.

PPF Tax Concessions

1. Annual contributions qualify for tax deduction under Section 80C of income tax as per the old Tax regime. The tax benefit is capped at ₹1.5 lacs per financial year.
2. PPF falls under EEE (Exempt, Exempt, Exempt) tax basket.
3. Contribution to PPF account is eligible for tax benefit under Section 80C of the Income Tax Act in the old Tax Regime.
4. Interest earned is exempt from income tax.
5. Maturity proceeds are also exempt from tax.

Death of Account Holder

If the account holder dies, the account will be closed and the nominee or legal heir(s) will not be allowed to continue making deposits.

• At the time of closure due to death, the PPF rate of interest will be paid till the end of the preceding month in which the account is closed.
• Note: As this is a Government of India scheme, customers are advised to visit the RBI/Government website for the latest instructions/modifications in the scheme

(http://nsiindia.gov.in/Home.aspx)