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Finance and Tax HUB

Finance and Tax Consultant

All about Public Provident Fund (PPF)

PPF stands for Public Provident Fund. As an investment option, this is mostly preferred by the individuals for saving tax. But this is good option for those as well who are not liable to pay tax. This works as per PPF Act, 1968.

PPF has the following features:

  1. The Public Provident Fund Scheme is a statutory scheme of the Central Government of India.
  2. This account is opened for 15 years.
  3. This account can be opened in the name of any individual or minor under guardianship.
  4. Account can be opened by residents only.
  5. HUF cannot open PPF account effective 13th May, 2005.
  6. No age is prescribed for opening a PPF account.
  7. After 15 years, this account can be extended for 1 or more block of 5 years.
  8. Rate of Interest on PPF varies from 8% to 9%. This rate every year is decided by the Govt. and at present is 8.7% compounded annually (as of April 1st 2015 – March 31st 2016).
  9. One deposit with a minimum amount of Rs.500/- is mandatory in each financial year. Minimum Investment to be done is INR 500 and maximum permitted investment is INR 1,50,000 in an year effective Aug, 2014. Only 12 deposits can be made in an year. The deposits shall be in multiple of Rs.100/- subject to minimum amount of Rs.500/-.
  10. Nomination facility is also available.
  11. Tax benefit is available for invested amount u/s 80C.
  12. Interest on maturity is fully tax exempt.
  13. Deposits are exempt from wealth tax.
  14. The balance amount in PPF account is not subject to attachment under any order or decree of court in respect of any debt or liability.
  15. This account can be opened in Authorised Banks and Post Offices only.
  16. Joint account is not permissible.
  17. Those who are contributing to GPF Fund or CPF/PF account can also open a PPF account.
  18. A Power of attorney holder can neither open nor operate a PPF account.

  19. The grand father/mother cannot open a PPF account on behalf of their minor grand son/daughter.

  20. This account can be transferred from one bank to another bank/ post office and vice versa.
  21. Loan and withdrawal facility is also available on the basis of age and deposit amount.
  22. One person can have only one PPF account at any point of time.
  23. Best for long term investment.

  24. The best time for deposit in the PPF a/c is between 1st to 5th of the month as any amount deposited upto 5th of the month ( Interest is calculated on the balance between 5th and last day of the month)

  25. Nominee/legal heir of PPF Account holder on death of the account holder cannot continue the account, but account has to be closed.

Documents Required for PPF Account

Documents for the PPF account are similar to the any other account in banks.

1.  A recent passport size photograph.

2.  Identity Proof copy with original to verify (Even PAN Card may be accepted as all tax payers are having it).

3.  Address Proof copy with original to verify.

Loan Facility from PPF

Loan facility is available on PPF subject to certain terms and conditions:

  1. One can avail loan from 3rd Financial Year to 5th Financial Year.
  2. Interest rate charged is 2% more than the prevailing interest year.
  3. Loan is to be repaid within 36 months.
  4. Maximum 2 nos of loans can be availed.
  5. 2nd loan can be availed only if 1st loan is fully repaid.
  6. Maximum of 25 % of the balance at the end of the 2nd immediately preceding year can be taken as loan.
  7. Loan facility is not available for inactive or discontinued accounts.
  8. After individual become eligible for withdrawal, loan facility cannot be availed.

Withdrawals from PPF

Withdrawals from PPF permitted subject to the following conditions:

  1. Withdrawal can be from the end of 6th Financial Year.
  2. Maximum amount which can be withdrawn is limited to 50% of the amount appearing in the account at the end of 4th year preceding the year in which the amount is withdrawn or the end of the preceding year, whichever is lower.
  3. After 15 year, full amount can be withdrawn if the same is not carried forward to another block of 5 years. 
  4. One withdrawal can be made every year starting from the 7th Financial Year.
  5. There is difference between loan and withdrawal. Loan amount is repayable whereas amount withdrawn is not repayable.

What will happen after 15 years

After 15 year, following options are available to the subscriber (account holder):

  1. Individual can withdraw 100% of amount including interest and close this account. Amount received will be 100% tax free including interest amount.
  2. Individual can extend the PPF account by another 5 years for unlimited number of times.

There are two options available in case of extension:

  1. PPF account extended with fresh contribution every year. In this case, 60% of the balance amount at the end of 15 years can be withdrawn. Only one withdrawal per year is allowed. In total, only 60% of the amount can be withdrawn.
  2. PPF account extended without fresh contribution every year. In this case, any amount can be withdrawn of the balance amount at the end of 15 years but once per year.

Consequences of default in depositing PPF

  1. If anyone makes default in depositing minimum contribution amount (INR 500 every year), account become inactive.
  2. To activate the account, that person needs to deposit INR 50 as fine and INR 500 as subscription amount for every year for which that person has made default
  3. Please note deactivated accounts do not earn any interest.