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A Complete Guide On Public Provident Fund (PPF)

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A Complete Guide On Public Provident Fund (PPF)

Guide On Public Provident Fund (PPF)

A Complete Guide On Public Provident Fund (PPF)

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1. Overview
2. Eligibility for opening a PPF account
3. How to open a PPF account? / Documents needed to open a PPF account
4. List of the banks Providing PPF account facility
5. Features of PPF account
6. Benefits of PPF account
7. Interest Rates of PPF
8. PPF Withdrawal Procedure

Amount Eligible For withdrawal
Application and Documents
Process

9. PPF Premature Withdrawal Rejection Cases
10. Premature Withdrawal Process
11. PPF Premature Closure
12. PPF account for Minor
13. How to check your PPF account balance online and offline?

Check PPF Account Balance at the Post Office
Check PPF Account Balance at the Bank

14. FAQ’s
15. Final Verdict/ Conclusion

Overview

Public Provident Fund (PPF) was introduced by the Finance Ministry’s National Savings Institute in 1968. Its primary objective was to mobilize small savings in the investment form and provide returns on the savings. The PPF schemes offer a captivating rate of interest and you need not pay any tax on the returns that are generated from the interest rates.

It is also termed as a savings-cum-tax-savings investment vehicle which facilitates building the retirement corpus while you save on annual taxes every year under Section 80C. If you are looking for a safe option to invest and save taxes, this is the best option one can opt for.

The minimum amount needed to open a PPF account is Rs.500 and it goes up to 1,50,000 in a fiscal year. You can deposit the money every month in 12 installments. It has a maturity period of 15 years though, within 1 year of its maturity, the period can be extended for a further 5 years.

Public Provident Fund Scheme

Public Provident Fund Scheme

Listed below are the criteria based on which you will be considered eligible to invest in PPF and open an account-

  • One has to be an Indian Resident to open up a PPF account
  • You can open only 1 PPF account
  • PPF account opened by NRI’s, while they were Indian residents, have a time limit in order to operate the account that is until 15 years. Also, without any option for extension
  • Based on a legal age proof, even a minor is eligible to open a PPF account
  • After a certain law being passed in the year 2005 on 13th May. Since then, Hindu Undivided Families (HUF) were denied to open PPF accounts. The accounts that were up and running prior to this date, were allowed until the maturity period of 15 years

How to open a PPF account? / Documents needed to open a PPF account

Earlier, it was only allowed in the Nationalized or government banks to open a PPF account. However, even private banks have started offering the PPF scheme.

You require a set of certain documents at the time of opening a PPF account. Following is the list of documents that are required-

  • You can either download the PPF account opening form online or you can get it from the specified bank branch. You can see the list of the PPF forms for account opening, withdrawals, and loans
  • Address proof may include Telephone bill, Electricity bill, Ration card, and Aadhar card
  • ID Proof may include PAN card, Voter ID card, Aadhar card, Driving license, and Passport
  • Nomination form
  • 2 passport-sized photograph of the account holder

Note: In the case of minors, the birth certificate will be required to consider their age proof

List of the banks Providing PPF account facility

Banks are amplifying each day due to the rapid increase in the number of PPF account. Many renowned banks are opening a PPF account. Listed below are the private and nationalized banks who offer PPF scheme-

  • ICICI Bank
  • Punjab National Bank
  • Central Bank of India
  • Bank of India
  • Corporation Bank
  • IDBI Bank
  • Vijaya Bank
  • Allahabad Bank
  • Indian Bank
  • Bank of Maharashtra
  • Canara Bank
  • Dena Bank
  • United Bank of India
  • Oriental Bank of Commerce
  • Indian Overseas Bank
  • Axis Bank
  • Bank of Baroda
  • Union Bank of India

Features of PPF account

The key features of PPF schemes are-

  • Duration of the account- The duration of the account that is the maturity period is for 15 years. However, the duration of the account can be extended maximum by 5 more years.
  • Deposit modes- The payment contribution towards the investment in PPF account can be made online through net banking, debit or credit card, or by demand draft, cheque or by cash.
  • The amount required to open a PPF account- The minimum amount needed to open a PPF account is R 100 and the maximum can go up to Rs 1.5 lakhs. No tax deductions can be claimed and no interest will be earned in case the annual investment exceeds Rs 1.5 lakhs.
  • Minimum and Maximum Amount- The minimum to maximum investment ranges from Rs 500 to Rs 1.5 lakhs in a financial year. The maximum number of installments allowed is 12 in a year.
  • Frequency of Deposits- At least 1 deposit has to be made, once a year for 15 years
  • Loan against a PPF account- You can avail loans against the PPF account between the 3rd and the 5th financial year from the date of opening of the PPF account. The amount of the loan can be availed up to 25% of the investment made until the end of the 2nd financial year. The loan can also be availed after the 6thfinancial year as well. Although, you need to pay off the first loan if you want to avail a second loan
  • Safety of opening a PPF account- All the PPF accounts offer guaranteed returns, capital protection, and risk-free as the Government of India is behind the management of PPF policies. Hence, the risk is minimal if you want to open a PPF account
PPF Accounts
PPF accounts

Benefits of PPF account

You will get certain privileges by opening a PPF account. These privileges are-

  • Tax deduction- It is one of the major pros of PPF account as you can claim the deductions on investments made in the PPF account of up to Rs 1.5 lakh, under Section 80C
  • Risk-free interest rate- You may get up to 8% interest rate which is decent in comparison with the other schemes. It has been proven out to be a good long term investment of 15 years
  • Compounded interest Rate- Your interest is paid at the end of financial year that is on 31st March, every year. The interest rate is compounded annually in this account.
  • Low investment token- It does not involve high-priced investment that you need to contribute towards the PPF account every year.
  • Withdrawal facility- You can also avail partial facility once after completing 7 financial years in the PPF scheme

Interest Rates of PPF

Several financial plans are affected and witnessed changes in terms of the service tax, rate of interest, returns, etc. Currently, if we analyze and compare the rate of interest provided by all banks is more or less the same, which is from 7.8% p.a to 8.0% p.a.

This year the rate of interest is provided is 7.9% p.a on a PPF account. The rate of interest is compounded annually. The interest is calculated on the minimum balance that is available between the 5th and the last day of the month.

Following table represents the rate of interest set by the Finance Ministry of India from last 8 years-

Financial YearInterest rate (Per Annum)
2018-20197.9%
2017-20187.8%
2016 – 20178.0%
2015 – 20168.7%
2014 – 20158.7%
2013 – 20148.7%
2012 – 20138.8%
2011 – 20128.6%
2010 – 20118.0%

PPF Withdrawal Procedure

The withdrawal is allowed up to 50% of the balance in the PPF account from the end of the initial year’s subscription to the completion of 5 financial years. And only one partial withdrawal is allowed in each fiscal. Let’s understand with the help of an example- ‘A’ has opened a PPF account on 25th January 2012. In this case, ‘A’ will be allowed to partially withdraw the amount only from the financial year 2017-2018.

Amount Eligible For withdrawal

The total amount eligible for withdrawal is lower the of either of them-

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  • Preceding the current year, 50% or half of the PF account balance at the closing of the financial year
  • Preceding the current year, 50% or half of the PPF account balance at the closing of 4th financial year

However, the account holder is permitted to make withdrawals once a year.
Once the tenure of 15 years is completed, the account holder is authorized to withdraw the whole amount along with the interest that has been generated.

Application and Documents

Form C needs to be submitted which is available at the post office or at your bank branch where the PPF account is. This form has to be affixed with the revenue stamp before you submit.

There are no major documents that you need to submit. Along with the withdrawal application, you need to submit the PPF passbook.

Process

The form C is a requisite for partially or completely withdrawing the balance standing in your PPF account. Form C has 3 sections-

  • Declaration Section- In this section, you need to mention the amount you want to withdraw and the account number along with the signature of the account holder. You also need to mention the year in which the account was opened.
  • Office Use Section- This section is comprised of details like-

i) Total balance lying in your PPF account
ii) The date at which the PPF account was opened
iii) The total amount you propose to withdraw
iv) Date on which previously requested withdrawal was allowed
v) The amount sanctioned for withdrawal
vi) Signature of the person in charge which is mostly the service manager

  • Bank details section- This section is composed of the details of the bank where you want the money to be credited. There are various ways in which it could be credited be it through the cheque, or the demand draft.

PPF Premature Withdrawal Rejection Cases

The premature withdrawal will not be sanctioned if the grounds of the claim are general. All the requests for premature withdrawal application are sent to the Ministry of Finance department, which are scrutinized meticulously. Only in the case of the death of the account holder, premature withdrawal is sanctioned. Some of the reasons for rejections are-

  • Marriage
  • Education
  • loan repayment
  • Retiring/ Suspension from the job
  • Migration abroad
  • Purchasing house/vehicle

Premature Withdrawal Process

You need to fill Form G for making a PPF claim on the death of the subscriber. This option for premature withdrawal’s claim is only available to the nominees or legal heirs. If the amount is less than Rs.1 lakh legal heirs or nominees can proceed with the claim by simply filling up the Form G along with the Letter of Disclaimer, Affidavit, Letter of Indemnity, and associated Annexure-

  • Annexure I to Form G (Letter of Indemnity) on stamp paper
  • Annexure-II to Form G (Affidavit) on a stamp paper
  • Annexure III to Form G (Letter of Disclaimer on Affidavit) on stamp paper

If the amount is higher than Rs.1 lakh, a Succession Certificate or Attested will or Letter of Administration is required along with the Form G. Be it any case, legal heirs or nominee also need to submit the other documents like death certificate, and passbook.

PPF Premature Closure

A PPF account holder is not authorized for premature closure within 5 years of opening the account. However, under certain circumstances, they are permitted to close the account after 5 years such as life-threatening intimidations affecting the account holder, spouse, children or their parents and higher education of the account holder or the minor account holder. In order to support premature closure on these grounds, a comprehensive set of medical documents have to be submitted.

Once premature termination is approved, 1% is deducted from the interest rate due to the premature closure of the PPF account.

PPF account for Minor

Parents or guardians are permitted to open a PPF account on behalf of their child. In fact, both the parents can open separate PPF accounts for the same child. So, the parents are allowed to open separate PPF accounts to the same count based on their number of children.

Grandparents cannot open PPF accounts on behalf of their grandchildren when the parents of the child are alive.

How to check your PPF account balance online and offline?

PPF is one of the safest investment options in India which is backed by the Indian Government offering between 7.8% to 8% rate of interest for a period of 15 years and the best part is that the principal and interest amount is tax-free. Despite this lock-in period, PPF also provides an option for partial withdrawal that starts from the 7th financial year from the date of opening.

To check the PPF balance online or offline, listed below are the ways based on if you have your PPF account at the post office or the bank-

Check PPF Account Balance at the Post Office

If you have opened up your PPF account in the Post Office, the only way to check the balance is by visiting the same branch of the post office where your PPF account was opened. Once you get your passbook updated, you will be able to check all deposits or withdrawals (in case there is any), and the balance available till date. The same goes for depositing the money too, you need to visit the same Post Office branch.

Check PPF Account Balance at the Bank

Checking the PPF account balance is effortless if you have opened your account in a bank. As you may not need to visit your bank branch in order to check the account balance, you can even check it online.

You need to log in to the e-portal through your net banking details (User ID and Password). Once you have logged in, you will get access to all the details. You can also link your PPF account details with your savings bank account but the only constraint is that both the accounts ought to be in the same bank account. Linking both the accounts will enable you to transfer funds to the PPF account easily.

If you do not have your internet baking activated, make sure you do it now. You can reap many benefits by having access to your internet banking. And, once your e-portal is activated you can easily transfer and check funds, view monthly statements, submit and check the status of your loan application, pay bills online and even make online purchases to your PPF online account whenever necessary.

Note: It is suggested if you open your PPF account at a bank, as you can perform all the related tasks towards your PPF account hassle-free.

FAQ’s

Q1) Are premature withdrawals also tax exempted?

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A1) Yes, whether it is premature or mature withdrawals from PPF, both of them are tax-free under section 80C.

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Q2) How to reactivate the inactive PPF account?

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A2) PPF account becomes inactive when you fail to deposit a minimum of Rs.500 for a particular financial year and you can revive it by-

  • Submit an application to reactivate your account at the bank or the post office, wherever your PPF account is based
  • Paying a fine of Rs 50 for the years it was inactive
  • Paying the arrears of minimum amount of Rs.500 for the years the account was inactive
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Q3) Can I invest more than Rs 1.5 lakh limit?

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A3) If you deposit more than the limit that is Rs 1.5 lakh for any year, interest will not be paid on the amount deposited above Rs 1.5 lakh. The maximum amount considered is Rs 1.5 lakh towards all PPF interest calculations.

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Q4) Can PPF be continued after 15+5 years?

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A4) You can only continue your PPF account after 15 years by a block period of 5 years by making further contributions (contributions are optional in the block period). You can extend your PPF account as many times as you wish by the same block period for 5 years with or without making more contributions.

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Q5) What is the best time to invest in PPF?

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A5) To earn maximum interest on your deposits into the PPF account, you should deposit the money on or before 5th April of a financial year. The financial year followed under the PPF schemes is April-March.

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Q6) Can a person have more than 1 PPF accounts?

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A6) One person is allowed to open only 1 PPF account. However, a family is permitted to open PPF accounts under their name, for example- father, mother, sister, brother or wife are authorized to open 1 account each under their name.

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Q7) Can I open a joint PPF account with my wife or any other family member?

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A7) No, you are not allowed to open it with anyone as the PPF scheme does not provide an option for joint accounts.

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Q8) Can I avail the tax deduction if I am depositing the money in any of my family member's account?

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A8) Yes, you can avail the tax deduction as a person is entitled to claim for the same if the contribution has been made from his/her account towards their family member’s PPF account.

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Q9) Will the interest be paid for the time my PPF account is inactive?

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A9) No, you won’t be paid from the time it has become inactive. However, the interest will be paid on the balance held at the time of revival.

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Q10) Is the interest rate in the post office and the bank same?

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A10) Yes, more or less it is the same. If we talk about the current financial year 2018-2019, the interest rate in the post office and the bank is between 7.8% to 8%.

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Final Verdict/ Conclusion

PPF is one of the safest investments that fall under the EEE (Exempt-Exempt-Exempt) category and considered to be the most common tax saving option. If you are keen to opt for a long term investment, it may prove out to be a superlative option for you. But if you are perturbed about the higher returns, you can go for some other schemes which may provide you better returns but will not be as good as PPF in terms of tax deductions.

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