What is PPF
A PPF or Public Provident Fund is the popular long-term savings scheme offered by the Government of India. The main objective of this is to help individuals to instill a habit of regular savings and provide returns on it. The scheme offers an attractive rate of interest and no tax is required to be paid on the returns generated from the interest rates.
Features of a PPF account
Duration: The minimum duration of a PPF account is 15 years. However, account holders can extend its duration by a block of 5 years.
Minimum and maximum contribution: A minimum yearly deposit of Rs. 500 is required to open as well as maintain the PPF account. The individuals can deposit a maximum of Rs. 1.5 lakhs in their PPF account per financial year. PPF Investments can be paid in a lump sum or installments. The maximum number of installments that are allowed is 12.
Deposit modes: Payment towards PPF can be made either online, through a Demand Draft, cheque, or cash.
The number of accounts that can be opened: An individual can open only one PPF account under his/her name. No joint accounts can be opened under such a scheme.
Safety of opening a PPF account: A PPF account is the best combination that offers tax-savings and returns at the same time and it is also backed by the Government of India. That is why opening a PPF account comes with minimal risks.
Loans against a PPF account: PPF account allow an individual to take a loan from the third financial year till the end of the sixth financial year. The amount that can be availed as a loan is 25% of the investments that have been made at the end of the second financial year.
Eligibility Criteria to open a PPF Account
- Any Indian Resident can open a PPF account. However, Non-resident Indians (NRIs) and Hindu Undivided Families (HUFs) are not allowed to such accounts.
- Parents or guardians can also open PPF accounts for their minor children.
Documents Required
The following set of documents will be required to open a PPF account-
- PPF account opening form i.e. (Form A). It can be obtained from specified bank branches or can be downloaded online
- ID proof such as Aadhaar card, Permanent Account Number (PAN) card, passport, etc., must be submitted
- Address proof with the current address on it
- Your recent photographs
- Signature proof
- Nomination form
After submitting the above documents, the amount that is required to open a PPF account needs to be deposited.
How to open a PPF account?
Individuals can open a PPF account at post offices, nationalized banks, post offices, or at major private banks through a net banking facility. After opening an account, a passbook same as the bank passbook recording all transactions such as subscriptions, interest, withdrawals, etc. will be issued. Some of the banks also allow individuals to see their PPF entries online instead of issuing a passbook.
PPF Interest Rate
At present, the rate of interest offered on PPF is 7.1%. It is compounded on an annual basis. Every quarter, the rate of interest is being notified by the Central Government. The interest rate calculation is based on the minimum balance that is available between the close of the fifth day and the last day of the month.
Tax benefits on PPF
Investments made under a PPF account come under the category Exempt-Exempt-Exempt (EEE). Therefore, all the deposits made towards a PPF account are tax-exempt under Section 80C of the Income Tax Act.
PPF Withdrawal
A PPF Account can be closed only after the completion of the 15 years. Once 15 years are completed, the account holder can withdraw the entire amount that has been saved in their account along with the interest that has been generated. However, in case the account holders need funds, partial withdrawal is available after completion of 5 years of opening the account. However, the maximum amount you can withdraw is capped at the lower of the two i.e. 50% of the balance at the end of the fourth financial year or 50% of the balance at the end of the preceding year. Remember, such withdrawals can be made only once in a year.
Premature closure of a PPF
Individuals can opt for a premature closure after the completion of 5 years on the following grounds such as the treatment of serious ailments or life-threatening diseases of the account holder, spouse, or dependent children or parents. Higher education of the account holder/ minor account holder. For that, you will need to submit certain documents such as fee bill and the admission confirmation from a recognized university in India or abroad.
Attachment of a PPF account
As per the rules, the PPF account is protected and the balance under such an account cannot be attached even by the court order. However, this rule does not apply to income tax authorities. Therefore, if the account holder has any pending dues, it can be attached for the payment of dues.
Nomination Rules
- Nomination can be made in favor of one or more person(s). In case, more than one person is appointed as a nominee, the percentage share of each nominee must be specified.
- Nominations are not allowed to an account opened on behalf of minors.
- Parent, spouse, relatives, children, friends, etc. of the account holder can be nominated.
- The account holder must submit Form E to add a nominee to the PPF account.
- Nomination can be made at any time during the tenure of the account. Any change or modification in nomination can be done through Form F.
- Nomination forms need to be signed by the account holder along with the two witnesses. The signature of the nominees is not required.
- After filling the form, it should be submitted at the appropriate bank/post office branch.
The Revival of Inactive Account
The PPF Account becomes inactive if the minimum contribution of Rs. 500 per year is not made. If the account has become inactive, in that case, a written request needs to be submitted at the post office or the bank branch where the account is based. A fine of Rs. 50 is also needed to be paid for each year.
Death of Account Holder
In case of the death of the PPF account holder, the proceeds of the PPF account can be claimed by the nominees/ legal heirs. The claimant is required to submit their application along with Form G. This form contains the information of the claim such as account number, nominee details, etc.
The following documents are required to be submitted to claim the PPF account proceeds:
In the case where the account holder has made a nomination
- Form G filled by all the nominees
- Account holder's death certificate
- Subscriber's Passbook
In the case where the nomination is not made by the account holder and the claim is supported by legal evidence
- Form G filled by legal heirs
- Account holder's death certificate
- Succession Certificate, Letter of Administration, or attested copy of the will
- Subscriber's Passbook
In the case where the nomination is not made by the account holder and the claim amount is less than Rs. 1 Lakh
Form G filled by legal heirs
- Account holder's death certificate
- Annexure I to Form G (Letter of Indemnity) on stamped paper
- Annexure-II to Form G (Affidavit) on stamped paper
- Annexure III to Form G (Letter of Disclaimer on Affidavit) on stamped paper
