Sukanya Samriddhi Yojana/Scheme Details (SSS)
January 24, 2018
Senior Citizen Savings Scheme Details (SCSS)
January 24, 2018

Public Provident Fund Scheme (PPF)

Last Update Date : August 13, 2018

Public Provident Fund is meant for those investors, who are looking for a safe corpus, a decent rate of return along with long-term investment options. The Public Provident Fund Scheme offers attractive interest rate and returns that are fully exempt from tax. Returns on PPF are usually higher than the returns offered by banks on Fixed Deposits.

Public Provident Fund Scheme

Features of PPF Scheme

  • Tenure: It is a long-term 15-year account.
  • Lock-in period: The lock-in period of PPF account is five years.
  • PPF interest rate: The current rate of interest on PPF is 7.6% p.a. applicable to the 4th quarter of FY 2017-18. Compounding of interest is on a yearly basis.
  • Initial deposit amount: Deposit of Rs 500 is required to open the account.
  • Annual deposit amount: The minimum deposit must be Rs 500 in a financial year. The maximum sum that can be deposited in a year is Rs 1.50 lakh (these deposits are subject to change as per government directive).
  • Flexible instalments: Deposits are allowed in lump-sum or maximum 12 instalments per year.
  • Nomination: The nomination facility is available in the name of one or more persons. You can nominate at the time of opening an account or any time after that.
  • PPF account transfer: You can transfer your PPF account to another branch/other banks or post offices and vice-versa. It is a free-of-charge service.
  • PPF account for minor: You may open a PPF account in the name of a minor.
  • Loan facility: You can avail loan from the 3rd financial year.
  • PPF withdrawal rules: Partial withdrawals are permissible only once every year from 7th financial year, from the year of opening account. It should not exceed 50% of the balance at the end of the 4th year or 50% of the balance at the end of the immediately preceding year, whichever is lower. However with the recent changes in PPF rules, one can prematurely close his PPF account after completion of 5 years of opening the account but, premature closure is allowed only under specified conditions.
  • Maturity retention: You can retain the maturity value without extension and further deposits.
  • Renewal/Extension of the scheme: Maturity period is 15 years, but, the same can be extended within one year of maturity for a further block of 5 years and so on.
  • Closure of PPF account: You cannot close the PPF account before maturity, however, according to the new rules of PPF, premature closure of the account is possible only after the account has completed 5 financial years and the reason for closure can be either higher education or medical treatment.

Benefits of opening a PPF account

  • Non-risky investment: PPF is a safe investment option as the government backs it.
  • Easily accessible: You can open an account at any nationalised or public sector banks or any post-offices and select private banks. You can also open this account online.
  • Good for retirement planning: PPF is a long-term investment with compound interest. Hence it is an ideal choice for retirement planning. PPF deposits come under the EEE (Exempt, Exempt, Exempt) tax category. The deposit amount, interest and withdrawal are fully tax exempt. However, the subscriber should not deposit more than Rs 1.50 lakh as the excess amount will not earn any interest nor will be eligible for deduction under Income Tax Act. H&R Block India can help you get optimum tax benefits out of your investment in this scheme. You can use any of the three Income Tax Filing Services for salaried individuals like Free Online Income Tax e-Filing, Expert Tax Preparation Services and In-person Tax e-Filing.
  • No attachment under court decree: You cannot attach the account in case of debt or liability.

Limitations of PPF account

  • You cannot open a joint account.

Who is eligible for opening a PPF account?

According to PPF account rules, PPF account can be opened by any resident Indian Individuals for self and in the name of a minor child. Non-resident Indians (NRIs), cannot open this account. But, account holders, who leave the country and acquire non-resident status after having opened a PPF account can continue to keep their accounts till the maturity of the account. NRIs are not allowed to extend account tenures at maturity. Account opened by HUFs before 13th May 2005 can be continued until maturity without any further extensions. You cannot open a new PPF account in the name of Hindu Undivided Family.

PPF account in the name of a minor

  • A parent/guardian can open a PPF account in the name of his/her minor children.
  • Either parent can open the account in the name of a child. Both are not permitted to open an account in the name of the same child.
  • Rules do not allow grandparents to open the account for their grandchildren. They can open the account only if you appoint them as legal guardian after the death of the parents.

Public Provident Fund Forms

There are several forms relating to PPF accounts. The table below mentions the specific purpose of each form about PPF account:

Type of Form Purpose of that Form
Form A Opening a PPF account
Form B Deposits/repayment of loans taken against a PPF account
Form C Partial withdrawals from PPF account
Form D Requesting a loan against a PPF account
Form E Adding a nominee to PPF account
Form F Making changes to PPF account nomination information
Form G Claiming funds in a PPF account by a nominee/legal heir
Form H Extending the maturity period of a PPF account

Documents required for opening a PPF account

You need to furnish KYC (Know Your Customer) documents such as identity proof, address proof and signature proof for opening a PPF account. These documents include the following:

  • Passport, PAN Card, Aadhaar Card, Driving License, Voter’s ID, Employer’s letter, Utility Bill, Rental/Lease Agreement, Bank Account Statements, Ration Cards, Signed Cheque
  • Photographs
  • The account opening form (Form A), and nomination form (Form E) are required if you need to mention nominees.

 

Note: Apart from these, banks may request additional documents if required. In case of minors, age proof will be necessary, i.e. the minor’s birth certificate or school certificate.

How to open a PPF account?

It is very simple to open a PPF account. It can be opened by visiting a post office or an authorised bank/bank branch, get the required forms, fill it up and then submit it along with the required documents. You can also open PPF account online through internet banking. You need to visit the website of any nationalised bank and fill up an online form. Cash/cheque can open the account, and in the case of cheque, the realisation date of the cheque in government account shall be the date of opening of the account.

Which banks are authorised to open a PPF account?

All the nationalised banks and a few private sector banks such as ICICI Bank, Axis Bank are authorised to open a PPF account.

Extension/Renewal of PPF account

After the initial maturity period of 15 years, account holders can extend their PPF account in blocks of 5 years for infinite times. One can opt for two kinds of extension – with or without contribution.

  • With contribution: The amount you deposit will be added to the balance amount held at the end of the 15th year and interest will be calculated on the entire amount. But, in this scenario, withdrawals will be limited to 60% of the amount held in the account at the start of each period of extension.
  • Without contribution: The account will continue earning interest on the amount accrued in the account until the end of the 15th year. Also, in this case, funds can be withdrawn once every financial year.

Defaults, inactivation and re-activation of PPF accounts

  • Minimum deposit of Rs 500 must be made in every financial year to keep the account active.
  • The bank will discontinue your account if you fail to deposit the minimum contribution.
  • Interest will, however, continue to accrue. You can regularise the account again on paying the prescribed penalty along with minimum subscription arrears. Also, facilities such as loan and withdrawal will not be available while the account is inactive.
  • To reactivate the account, the account holder will have to pay a penalty of Rs 50. This penalty is applicable for each year the account has been inactive. In addition to it, he/she will have to deposit an amount equal, at least, to the minimum investment each year plus Rs 500 for the year of activating the account.

Comparison Among Best Tax-saving Avenues

The table below is a comparison among best tax-saving avenues – NSC, PPF & ELSS:

 
National Saving Certificate (NSC)
Public Provident Fund (PPF) Equity Linked Savings Scheme (ELSS) Linked Savings Scheme (ELSS)
Interest Rate 5 year NSC VIII Issue – 7.6% (4th quarter of FY 2017-18) 7.6% p.a. (4th quarter of FY 2017-18) Market-linked rates of interest can range over 12% to 24% p.a.
Investment Limit Minimum Investment: Rs 100
Maximum Investment: No Limit
Minimum Investment: Rs 500
Maximum Investment: Rs 1,50,000
Minimum Investment: Rs 500
Maximum Investment: No Limit
Lock-in period 5 years for NSC VIII Issue & 10 years for NSC IX Issue 15 years (partial withdrawal under special cases) 3 years
Mortgage Used as a security for mortgage Not used as a security for mortgage Used as collaterals for availing loans for vehicles, housing and secured loans after lock-in period over
Tax benefit Rs 1.5 lakhs u/s 80C Rs 1.5 lakhs u/s 80C Rs 1.5 lakhs u/s 80C
Investment option Medium-term Long-term Short-term
Interest Fully Taxable Fully Exempt Not Applicable
Risk-Profile Safe Safe Moderate

So, as you can see, SSS is a risk-free investment scheme which also offers a good return on investment. We hope that this investment guide has given you all the information that you need to invest in this lucrative scheme.

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