What Are The PPF Account Rules and Regulations And Benefits?

The Public Provident Fund (PPF) Scheme was launched for the salaried middle class in India. Hence, the deposits were kept low and affordable. PPF accounts are user-friendly, accessible and tax-free.

What is PPF?

PPF is a tax-free savings alternative introduced by the Indian Ministry of Finance (MoF) in 1968. The interests on deposits to your PPF account are not taxable. PPF deposits can be claimed as tax deductions as well. PPF scheme is one of the most tax-efficient saving schemes in the country and was launched to encourage savings among Indians.

There are different PPF forms designed for specific purposes:

Form A: Required for opening a Public Provident Fund Account (PPF Account)

Form B: Required for making deposits into a PPF account/repaying loans taken against the account

Form C: Required for making partial withdrawals from a PPF account

Form D: Required for requesting a loan against a PPF account

Form E: Required for adding a nominee to a PPF account

Form F: Required for making changes to PPF account nomination information

Form G: Required for claiming funds in a PPF account by a nominee/legal heir

PPF interest rates

People can make deposits in their PPF accounts for fixed periods to earn returns on the savings. The interest rates on PPF account deposits are mostly revised from year to year. The PPF interest rate for 2015-16 was 8.7%. The rate in 2016-17 was revised to 8.1%, which was then changed to 8% in 2017-18.

PPF Accounts

PPF accounts can be opened at nationalized and authorized banks or its branches and post-offices. PPF accounts can also be opened at certain private sector banks. Opening a PPF account requires filling out the concerned forms, submitting relevant documents and depositing the minimum deposit amount at an authorized bank branch/post office.

Interest rates on PPF account deposits are set and calculated by the Government of India. The interest is calculated according to the rate announced for that financial year. The maximum deposit amount can also change. A fiscal year is considered to be the period between April 1 of the first year to March 31 of the consecutive year.

PPF scheme features

1. Interest rate: 7.6% per annum (annually compounded)

2. Maturity period: 15 years

3. Initial deposit amount: Rs. 100

4. Annual deposit amount: Rs. 500 - Rs. 1,50,000 per year

5. Deposit frequency: to be deposited each year for 15 years

6. Mode of deposits: cash, cheque, PO, DD, online fund transfer

7. Nomination for the PPF account is allowed

8. Loan facility: available from the third financial year

9. Account Extension/Renewal: Can be extended within one year of maturity for five more years

10. Joint PPF accounts: not allowed

11. Account withdrawals: allowed from the 7th financial year; complete withdrawal allowed only on maturity

12. Tax advantages: Interests earned on deposits are tax-free; the deposits are tax-exempted under Section 80C of Income Tax Act

13. Funds transfer: Can be transferred from one bank branch/post office to another free of cost; funds, however, cannot be transferred between people

14. Premature closure: Can be prematurely closed after five financial years; user needs to furnish documents supporting the cause.

PPF Scheme Interest Rates

The PPF Scheme is a fixed-income debt investment offered by the Indian government. The central government fixes and announces the PPF interest rates. The current rate stands at 7.6% for 2017-18. The interest rates for the last 16 years are given below:

2017-2018: 8.0%

2016-2017: 8.1%

2015-2016: 8.7%

2014-2015: 8.7%

2013-2014: 8.7%

2012-2013: 8.8%

2011-2012: 8.6%

2010-2011: 8.0%

2009-2010: 8.0%

2008-2009: 8.0%

2007-2008: 8.0%

2006-2007: 8.0%

2005-2006: 8.0%

2004-2005: 8.0%

2003-2004: 8.0%

2002-2003: 9.0%

2001-2002: 9.5%

2000-2001: 11.0%

The interest amount is annually compounded and credited at the end of a financial year as per the rate announced for that year. The interest rates may vary during the entire tenure. Amounts deposited before 5th of every month are considered for calculations. Ideally, deposits should be made between the 1st and 5th of every month for maximum returns. There are no significant fluctuations in the interest rates, making the PPF scheme a stable investment option.

Compound interest rates make the PPF Scheme. The earlier the account holders invested and stayed invested in the scheme, the more money they can earn at PPF account maturity. Stable interest rates along with a rise in the deposit ceiling enhance returns.

Benefits of PPF Scheme

1. Desirable long-term investment option: The PPF scheme, with a deposit tenure of 7 years, serves as an attractive long-term savings option. Because of annually compounded interest rates, effective PPF returns are better than FD returns.

2. Tax-free returns: The interest amount and the deposit amount can be claimed as tax deductions.

3. Low-risk investment option: As the PPF scheme is government-backed, there are low risks of defaults.

4. Accessible to all: PPF accounts can be opened at almost all public-sector and certain private-sector banks and post offices which makes the PPF scheme available to the common public.

5. No attachment: PPF funds can't be laid to claim by creditors nor attached under court order.

PPF Account Rules and Regulations

There are several rules and regulations governing PPF Scheme about the eligibility and the document requirements, account opening, operation and maintenance of a PPF account, loan facilities, account withdrawals, account closure and extension of accounts. The necessary regulations are given below.

1. Eligibility to Open a PPF Account:

• One person can open only one PPF account. Resident Indians, above the age of 18, can open an account. PPF account opening does not have any upper age limit.
• Guardians can open a PPF account for the minors under their care the maximum deposit limit of Rs. 1,50,000 applies to both the guardians' and minors' accounts.
• Non-resident Indians cannot open a PF account. However, if they apply for a Non-resident status after opening a PPF account, they can maintain the account until it reaches maturity. They are barred from renewing/extending account tenures at maturity.
• HUFs cannot open a PPF account since 2005. HUFs who opened accounts before May 13, 2005, can continue their accounts till maturity.
• Individuals cannot open PPF accounts for HUF.
• Foreign nationals cannot open PPF accounts.

2. How to Open a PPF Account?

• One can open a PPF account online or at any post office or a branch of a bank authorized for PPF account opening. The initial minimum deposit is Rs. 100 but the annual minimum deposit should be Rs. 500.
• Opening a PPF account at a post office or a bank branch requires obtaining, filling in and submitting required forms with concerning documents. The person opening the PPF account should deposit at least Rs. 500. Banks and post offices act as agents authorized to act on behalf of the central government.
• Opening a PPF account online requires visiting a bank's official website or through third-party financial services' sites. An online PPF account is subject to the terms and conditions of the bank whose website it is. Opening an online PPF account saves much time, effort and travel costs for the user. Many banks offer additional facilities such as linked savings accounts, instant account balances and mobile updates.
• The PPF Scheme is popular among those interested in tax-free returns and guaranteed interest earnings. There is no exposure to risks associated with equities in the stock market, as PPF falls under the debt-oriented assets class.

3. How to Transfer a PPF Account?

A PPF account holder can transfer their account from a bank to a post office and vice-versa based on their convenience. There can be the following ways for a PPF account transfer:

a. Post offices don't have online fund transfer facility.

b. The user is relocating to another city/rural area/smaller town.

c. The user is dissatisfied with customer service.

A user has to complete the following steps to transfer their PPF account:

a. To transfer a PPF account within the same bank or post office: The account holder should submit a form requesting a switch to a preferred branch. The process can take 1-7 days.

b. To transfer a PPF account to another bank or post office: The account holder must visit their account branch of the bank or post office with the account passbook and submit a transfer request form. The form must contain the address of the new branch where the account holder wishes to open a new PPF account. The account holder also has to submit a new account opening application at the new branch. The account holder will also require passport-size photographs, PAN card and an identity proof like AADHAR card for the KYC process. A new passbook will be issued to the account holder post completion of all formalities.

4. How to Extend a PPF Account after Maturity

After the maturity of a PPF account, the account holder can either choose to withdraw the entire amount and close the account, or extend the term with fresh deposits or extend the account without any fresh deposits.

a. Extension without new deposits: If the account is continued without any deposits for a year, no more deposits can be made for the remainder of the tenure. The interest will be calculated on the remaining balance.

b. Extension with fresh deposits: To extend the account with deposits, the account holder must intimate the account office before the expiry of the first extension. The holder must also submit Form H to make fresh deposits.

5. Partial Withdrawal from a PPF Account

Partial withdrawals from a PPF account are subject to terms and conditions. The account holder can make only one partial withdrawal in a year. The holder must submit Form C to make the withdrawal, which must not exceed 60% of the total amount in the account.

6. Documents Required for Opening PPF Account

KYC documents such as identity proof, signature proof and address proof are needed to open a PPF account. These include Passport, AADHAR card, PAN card, Driver's license, Utility bill, Voter's ID, Rental/lease agreement, bank account statements, and ration cards. Apart from these, photographs of the account holder, account opening form and nomination form are also required. The bank may also request additional documents.

7. Reviving a Discontinued PPF Account

The account holder should submit a written request to restore an abandoned PPF account to the bank or post office in which the account was opened. They also have to pay a penalty of Rs. 50 for each financial year for the entire duration when deposits were not made. An additional Rs. 500 deposit must be made as arrear payment along with another Rs. 500 as a gesture of subscription.

8. Investment Limit in PPF Account

The upper limit for the deposit amount into a PPF account is Rs. 1,50,000 in a year. Depositing more than this amount bars any earning in interest rate and renders the account holder ineligible for tax rebates as per the ITA guidelines.

Banks Where PPF Accounts can be Opened

A PPF account can be opened in the following public sector and private sector banks. Authorized branches can be viewed on the respective banks' websites.

1. State Bank of India

2. Bank of India

3. Allahabad Bank

4. Bank of Baroda

5. Bank of Maharashtra

6. Canara Bank

7. Central Bank of India

8. Corporation Bank of India

9. Dena Bank

10. IDBI Bank

11. Indian Overseas Bank

12. Oriental Bank of Commerce

13. Union Bank of India

14. United Bank of India

15. Andhra Bank

16. Vijaya Bank

17. Punjab and Sind Bank

18. UCO Bank

19. ICICI Bank

20. HDFC Bank

21. Axis Bank

Types of PPF Forms

As mentioned earlier, there are eight types of PPF forms concerning a PPF account. These are:

1. Form A :

Form A is issued for opening a new PPF account. It requires details of the account holder, such as their name, address, PAN card and signature. It also needs the deposit amount to be specified. Form A for minors should also include the guardian's name and their relationship with the minor. In case an agent is opening the account, the agent's name is required too.

2. Form B:

Form B is used to deposit /repay loans taken against a PPF account. The pay-ins can be deposits, investments, loan repayments or penalty payments to reactivate a defunct account. The Pay-in-slip should specify the amount deposited, which can be done via cheques, DD, or internet banking. If an agent is depositing the amount, then their name and code should be mentioned too.

3. Form C:

Form C is utilized to make partial withdrawals from the account from the 7th year of opening the account. The form requires details like the PPF account number, amount to be withdrawn, and a declaration stating that no further withdrawals were made in that financial year.

4. Form D:

Form D is needed to request a loan against a PPF account. The loan can be availed from the third to the 6th year since the account opening. The form requires the PPF account number, loan amount and a declaration that the loan amount will be repaid with interest within the next three years.

5. Form E:

Form E is used for adding a nominee to a PPF account. There can be more than one nominee for a single account. The form should include details of the nominees like their names, addresses, and relations with the account holder. The percentage of PPF funds to be claimed by each nominee should also be specified. Nominations cannot be made for PPF accounts of minors.

6. Form F:

Form F is required for making changes to the PPF account nomination information. The changes might involve canceling, replacing or altering nominee information or the percentage of funds allocated to the nominee. The user must specify the time when the nominee was added to the account. Nominees can be removed or added at any point during the PPF account tenure.

7. Form G:

Form G is utilized for claiming funds from a PPF account by a nominee after the death of the account holder. The Form should be appropriately filled with details like the name(s) of the nominee(s). The form should also contain the confirmation of enclosure of death certificate of the account holder by the nominee.

8. Form H:

Form H is for extending the maturity period of a PPF account beyond the standard tenure of 15 years. The form should specify the PPF account number and date of account opening.

Factors affecting PPF Interest Rates

The Indian Government fixes PPF account interest rates based on prevailing economic conditions or rates of 10 year-government bonds. It is usually set at a small percentage above the inflation rates.

Tax Advantages of PPF Scheme

PPF deposits belong to the EEE (Exempt, Exempt, Exempt) tax category. The deposits made under the PPF scheme can be claimed as tax deductions under section 80C. Also, the interests earned on the deposits are not taxable. The withdrawals are exempted from wealth tax. Deposits made to a spouse's or a minor's PPF account are also qualified for tax breaks.

PPF Calculator

A PPF calculator is a free financial online tool. It is provided on most of the banks' or post offices' websites and is useful for investing in the PPF scheme. It helps the account holders to calculate the interest on PPF deposits and maturity amounts. It also determines the amount of investment required for maximum returns. The results are displayed in user-friendly charts or tables indicating how much principal amount gets collected and how much amount to expect on maturity.

The tool helps users find out how much they can gain on extending their maturity period. The PPF deposit calculator is handy in making quick calculations to check account balances after accounting for all debts. The PPF investments can be tracked and compared with other modes of savings like FDs and RDs. The calculator also determines how much a user can borrow or withdraw from the PPF account.

FAQs

1. Can I open 2 or more accounts under the PPF scheme to increase my investment?

A: Under the PPF scheme, a person can hold only one PPF account under their name.

2. Can I continue using my inactive account?

A: You can reactivate and use your PPF account by paying a penalty of Rs. 50 for every inactive financial year along with Rs. 500 for the fiscal year in which you are activating your account.

3. Will I earn any returns when my account is inactive?

A: No interest will be calculated for the years during which your account was inactive. The interest will again be calculated on balance in the account once it is reactivated.

4. I have PPF accounts for my child and me. Can I claim tax deductions from both the accounts?

A: Only deposit amounts up to Rs. 1,50,000 can be claimed as deductions from both your accounts combined.