Introduction
Let us try to list some of expectations of an investor from an investment product:
- Income tax benefits: The product should offer income tax deduction benefit at the time of investment and the returns on maturity should be tax free.
- Returns expectations and risk involved: The risk involved should be low and the returns earned should be high or reasonable and should be able to beat inflation.
- Liquidity: Premature withdrawals should be allowed or loan should be available against the investment made in the product. If both facilities are allowed; then its even better. Premature closure should be allowed.
- Time horizon: The tenure should be flexible. Also the product should be a good investment tool for wealth creation and meet long term objectives / goals like retirement planning etc.
- Flexibility: The regular amount that can be invested in the product should be flexible.
So that’s quite a few expectations. Well it is difficult to figure out an investment product that will offer you all these features exactly as you want them ……….. but the one that comes closest to meeting the maximum expected features of an investment product is none other than PPF ………. Yes! you got it right ……. We are talking about Public Provident Fund (PPF). PPF benefits lot of people. This is one of the most popular tax saving and investment tool used by a vast majority of the population. So what is it that makes this product so popular among the investor community ………. Let’s explore
What is PPF account?
The Public Provident Fund or PPF is one of the small savings schemes offered by the Government of India for individuals. It is a debt instrument. Through the PPF scheme, individuals can invest their savings on a regular basis with the Government and the Government credit annual interest in the account. The individual can withdraw the amount invested along with interest on the maturity of the scheme. So now that we know about PPF, let us understand the PPF account details and PPF account rules which are specified in the Provident Fund Act.
Features of Public Provident Fund
1) How to open PPF account in SBI or other financial institutions
A PPF account can be opened by a resident Indian. It can be opened with any authorised branch of the State Bank of India (SBI) or its subsidiaries or any post office or any other bank (public sector as well as private sector) as authorised by the Government from time to time. In rural areas where there are no bank branches or bank branches are located in far areas, opening PPF account in post office is the preferred option.
The individual has to submit the account opening form (Form A) along with KYC documents (ID proof and address proof) and photograph. You will have to submit your PAN card as ID proof. The minimum amount required at the time of opening the account is Rs. 100. The PPF account opening process is simple.
On opening a PPF account, the account holder is issued a passbook that keeps a record of all the transactions in the account like date, deposits, loan taken, withdrawals, interest credited etc.
How to open PPF account online: Some banks have a link for Account Opening Form on their website. They ask you to fill the form and then take a print out and submit it at the branch or they ask you to take a print out of the form and then fill it and submit it at the branch. Once the PPF account is opened, it will be linked to your savings account with the same bank. Using the online PPF account facility, you can transfer your regular PPF contribution from your savings account to your PPF account.
2) Safety
The Public Provident Fund is a Government sponsored scheme. It is backed by the Government of India. Since the product comes with sovereign guarantee; it offers the highest safety and credibility. The safety of both the principal as well as the interest is assured.
3) Minimum and Maximum Amount
The PPF minimum amount to be deposited in a year is Rs. 500. Such a low PPF minimum deposit ensures that even people belonging to lower income groups can subscribe to PPF scheme. The maximum PPF investment limit in a financial year is Rs 1,50,000. In case of deposits made through cheque, the date of cheque clearing will be considered and not the date on which the cheque was deposited.
You have to use Form B for making deposits in PPF account. This is like a deposit pay-in slip that we use for making regular deposits in a bank savings account.
4) PPF deposit rules
The investor can make a lumpsum deposit or a maximum of 12 deposits in a year. But this is not subject to 1 deposit per month. The investor can make the 12 deposits in a year at any time as per his / her convenience and the liquidity available. So there is lot of flexibility with regards to deposits.
5) PPF Tax Benefits
The PPF deduction under Section 80C is one the reasons for its huge popularity. The annual contribution of up to Rs. 1,50,000, made to a PPF account, qualifies for deduction from taxable income under Section 80C of the Income Tax Act.
Apart from your own account, you can make contributions to your spouse’s PPF account and to the PPF account/s of your minor kid/s. But irrespective of the total contribution made by you, to your account and accounts of spouse & kids, you can avail deduction from taxable income under Section 80C for a maximum of Rs. 1,50,000 in a financial year. So Rs. 1,50,000 is the PPF maximum limit on which you can avail tax benefits in a financial year. Also, if you make contribution to your spouse’s PPF account, then only you can avail tax benefit for the contribution and not your spouse.
The maximum deduction under Section 80C for AY 2017-18 is Rs. 1,50,000 which includes PPF and other investments products.
The annual interest that is credited to the PPF account is tax free
The maturity proceeds received from a PPF account are tax free in the hands of the investor.
Some people ask is PPF taxable at any stage? The simple answer is NO. PPF falls under Exempt-Exempt-Exempt (EEE) tax category.
PPF accounts are also exempt from wealth tax.
6) PPF rate of interest
The Government announces the interest rate on PPF deposits on a quarterly basis, before the start of the quarter. The PPF account interest rate is compounded annually.
PPF interest rate history
| Year | Interest |
| 1 April 2012 - 31 March 2013 | 8.80% |
| 1 April 2013 - 31 March 2014 | 8.70% |
| 1 April 2014 - 31 March 2015 | 8.70% |
| 1 April 2015 - 31 March 2016 | 8.70% |
| 1 April 2016 - 30 June 2016 | 8.10% |
| 1 July 2016 - 30 September 2016 | 8.10% |
| 1 October 2016 - 31 December 2016 | 8.00% |
| 1 January 2017 - 31 March 2017 | 8.00% |
| 1 April 2017 - 30 June 2017 | 7.90% |
As you can see from the above table, the PPF interest rate (2017-18) and 2016-17 is being revised on a quarterly basis. Before that the rate was revised annually. The PPF interest rate in SBI and other banks is the same as the interest rate is decided by the Government and not banks individually.
Based on the current rate of interest, a PPF calculator on any bank website can help you calculate the maturity amount.
7) Interest Calculation and Credit to account
The interest is calculated on the lowest balance in the account between the 5th and last date of the month. So it is a good practice to make a deposit before the 5th of the month, if you want that deposit to be taken into consideration for interest calculation for that month. Deposits made after the 5th till the last date of the month, will not be considered for interest calculation for that particular month. They will be considered for interest calculation for the next month.
The interest on the PPF balance is credited to the account on 31st March every year.
The PPF maturity period is 15 years. With the current interest PPF interest rate, if you want to know how much amount you will accumulate in 15 years, you can use the PPF interest rate calculator shown on some bank websites.
Let us compare the PPF tax free interest with another debt instrument like Bank FD which is also offering the same interest rate. The interest earned on Bank FD’s is taxable and this effectively reduces the post-tax return below the rate offered. In such a scenario PPF becomes much more lucrative as compared to bank FD’s. Check the current interest rate on PPF and other Small Saving Schemes
8) Nomination facility
PPF account comes with nomination facility. You can appoint nominee/s at the time of opening the account or any time during the tenure of the account.
You can also change the nominee/s any time during the tenure of the account. You have to submit a duly filled copy of Form E for nomination.
Nomination facility is not available for PPF accounts for minors.
9) PPF loan rules
A person can take a loan against his / her PPF balance between the 3rd year and the 6th year (up to end of 5th financial year). For loan against PPF a/c, the loan application can be made using Form D. The loan amount is limited to 25% of the balance outstanding in the account at the end of the second year immediately preceding the financial year in which the loan is requested.
The principal amount of the loan is to be repaid within 36 months. The principal amount may be repaid as a lumpsum amount or in two or more monthly instalments within the 36 months period. After the principal amount is fully repaid, the interest has to be paid in no more than two monthly instalments. The interest on the loan is charged at 2%.
The accountholder can apply for a second loan on PPF account only after the first loan is fully repaid along with interest.
10) Partial withdrawal from PPF
A person can make partial withdrawal from PPF account from the 7th year onwards for meeting any emergency requirements. Only 1 withdrawal is allowed per year. The amount that can be withdrawn is subject to certain limits.
You have use Form C to make a partial withdrawal from your PPF account.
11) Premature closure of the account
Earlier, premature closure of PPF account was permissible only in case of death of the account holder. On the death of the accountholder, the proceeds of the account are passed on to the nominee. On death of the accountholder the nominee cannot continue to operate the account. The account has to be closed in such cases. There will be no interest penalty in case of closure due to death of account holder.
From 2016, premature closure is allowed under certain circumstances, apart from death of the account holder. The account should have completed five financial years. The account can be closed if the money is required for:
a) Higher education of the account holder. The account holder has to produce supporting documents and fee bills as proof to confirm his / her admission in a recognised institute of higher education in India or abroad
b) Treatment of life threatening disease/s or serious ailment/s of the PPF account holder, spouse, dependent children or parents. The account holder has to produce supporting documents from a competent medical authority
In case of premature closure, due to the above 2 reasons, there will be an interest penalty of 1% for each year the account existed. For example if the account existed for 10 years, then 1% interest penalty will be deducted from the interest rate that was applicable during each of these 10 years.
12) PPF lock-in period and maturity options
The tenure of the scheme is for 15 years. Once the 15 years are over, you have 3 options:
PPF Maturity Options
a) PPF withdrawal rules after 15 years: The first option is to withdraw the PPF account balance and close the account. The PPF withdrawal rules specify that this can be done by submitting duly filled Form C. If you don’t want to withdraw the entire amount as lumpsum at one go, then you also have the option to withdraw the amount in instalments over a period of one year from the date of maturity of the account. Lot of people make PPF withdrawal after 15 years as they are not aware of the other two options. These are discussed below.
b) Extend account with contribution: The second option is, if you wish to continue, then the account can be extended for a block of 5 years at a time and you can continue making deposits. You will continue to earn interest on the existing balance and the new contributions that you make every year. PPF extension rules specify that you can do this by submitting duly filled Form H within 1 year from the date the account matures. If you don’t utilise this option of ‘extension with contribution’ within 1 year from the date of account maturity, then by default the option of ‘extension without contribution’ will be activated.
After 5 years you can make provident fund withdrawal and close the account or extend again for 5 years with contributions or extend for 5 years without contributions. You can continue extending for a block of 5 years as many times as you wish. You are allowed to make one withdrawal per year from the account. The maximum total amount that can be withdrawn during these 5 years is limited to 60% of the balance in the account that existed at the beginning of the extension period. This maximum withdrawal condition is applicable for every block of 5 years that the account is extended with contributions.
c) Extend account without contribution: The third option is, if you wish to continue with the account without making any further deposits; in that case also you can still extend the account by a block of 5 years at a time. You will continue to earn interest on the balance in the account. You will be allowed to make one withdrawal in a year without any amount restriction (remember there is 60% limit restriction when account is extended with contributions).
PPF account is a very good long term investment tool for wealth creation. It can also be used as a retirement planning tool.
13) PPF balance cannot be attached
The balance in a PPF account cannot be attached under a court order due to any debt or liability of the accountholder. This is beneficial to business people or individuals who have taken loan/s. If due to some unforeseen circumstances you are not able to pay some loan, then the bank or financial institution cannot attach your PPF account to recover the loan outstanding amount.
14) How to transfer PPF account
A PPF account can be transferred from:
a) One bank branch to another bank branch or
b) One post office to another post office or
c) A bank branch to a post office or
d) A post office to a bank branch
For PPF account transfer, the accountholder has to make an application at the current post office / bank branch where the account exists to transfer it to the post office / bank branch of his / her choice. The existing post office / bank branch will process the transfer application and send all the details (paperwork) and balance to the post office / bank branch where the account has to be transferred.
15) Minor account
In case of a minor, either the father or the mother can open a PPF account on behalf of the minor. Since only one PPF account is allowed per person, mother and father, both cannot open separate PPF accounts in the name of the same minor child.
Grandparents cannot open an account on behalf of their grandchildren. However in the event of death of both parents, the grandparent, as a guardian, can open a PPF account on behalf of the minor grandchild.
16) Contributions to minor account
You can make contributions in your PPF account as well as your minor child’s PPF account. But the total amount that you can claim as deduction under Section 80C of the Income Tax Act is a maximum of Rs. 1,50,000 in a financial year.
17) Multiple accounts and joint accounts
An individual can have only one PPF account in his / her name at a time. You cannot have multiple PPF accounts in your name at the same time. Once you close an existing PPF account in your name, you can open a new PPF account. If the Government comes to know that you have two accounts at the same time, then one account will be closed and only the principal will be returned to you without any interest.
In case of PPF, joint accounts are not allowed. The account has to be in a single name.
18) NRIs and HUF
So far we have seen who can open PPF account. Now let us see who cannot open PPF account. Non Resident Indians (NRI) cannot open PPF account. However if you are a resident Indian and you open a PPF account and later you become a NRI, during the tenure of the account, then in such cases you can continue with the account for 15 years till maturity. You cannot extend the account beyond 15 years.
From 2005, a Hindu Undivided Family (HUF) cannot open a PPF account. Accounts that exist before this date can continue till maturity of 15 years, but cannot be extended further.
19) Regularising a discontinued account
An account holder has to make a minimum deposit of Rs. 500 every year; in the PPF account. If for whatever reason the deposit is not made in a particular year; the account becomes discontinued. Such accounts cannot be closed before the tenure of 15 years. However a discontinued account can be activated (regularised) by paying up the respective amounts (minimum Rs. 500) for every year of default and the penalty of Rs. 50 for every year the account was discontinued.
For the time period for which the account is discontinued, it will not earn interest. Once the account is regularised, the interest calculation will start on the balance in the account at the time it is regularised.
20) Other Miscellaneous Features
For self-employed people, professionals and businessmen who do not have access to Employee Provident Fund (EPF), PPF can serve as an excellent investment tool.
There is no PPF age limit for opening an account.
While there are more PPF account benefits, the above ones that we have mentioned are the important ones.
21) Forms used in PPF account
There are various forms used for PPF accounts for processing various request. Following is the list of forms used:
a) Form A: Used for opening a new PPF account
b) Form B: Used for making regular deposits in the PPF account. This is like a pay-in slip used in a bank for making cash or cheque deposit in a savings account. This form is also used for loan repayment (if any). If your account has been discontinued, then you can use this form to pay the penalty to regularise the account.
c) Form C: Used for making partial withdrawals from the PPF account.
d) Form D: Used for making a loan application against the balance in the account.
e) Form E: Used for adding a nominee in the PPF account. In case more there is more than one nominee, then the percentage of shares of each nominee must be specified.
f) Form F: Used for making changes to existing nomination. Using this form you can cancel the existing nominee/s and replace them with new nominee/s.
g) Form G: Used to claim the funds in the PPF account by the nominee, in the event of death of the PPF account holder.
h) Form H: Used for extending the tenure of the account by 5 years, on the maturity of the account.
Interest rate on PPF and other small saving schemes
| Year | SCSS | POMIS | 5 year NSC | PPF | KVP | SSA |
| 1 April 2012 - 31 March 2013 | 9.30% | 8.50% | 8.60% | 8.80% | NA | NA |
| 1 April 2013 - 31 March 2014 | 9.20% | 8.40% | 8.50% | 8.70% | NA | NA |
| 1 April 2014 - 31 March 2015 | 9.20% | 8.40% | 8.50% | 8.70% | 8.70% | 9.10% |
| 1 April 2015 - 31 March 2016 | 9.30% | 8.40% | 8.50% | 8.70% | 8.70% | 9.20% |
| 1 April 2016 - 30 June 2016 | 8.60% | 7.80% | 8.10% | 8.10% | 7.80% | 8.60% |
| 1 July 2016 - 30 September 2016 | 8.60% | 7.80% | 8.10% | 8.10% | 7.80% | 8.60% |
| 1 October 2016 - 31 December 2016 | 8.50% | 7.70% | 8.00% | 8.00% | 7.70% | 8.50% |
| 1 January 2017 - 31 March 2017 | 8.50% | 7.70% | 8.00% | 8.00% | 7.70% | 8.50% |
| 1 April 2017 - 30 June 2017 | 8.40% | 7.60% | 7.90% | 7.90% | 7.60% | 8.40% |
Comparison between Public Provident Fund and National Saving Certificate
| Public Provident Fund | National Savings Certificate |
| The tenure of PPF is 15 Years. On maturity the account can be extended for a block of 5 years at a time. | The tenure of NSC is 5 years. On maturity the option of renewal / reinvestment is available. |
| A person has to deposit a minimum of Rs 500 every year to keep the account active. | A person can start with a minimum deposit of Rs 100 without having to make yearly contributions. |
| The maximum investment that can be made in a financial year is Rs 1,50,000 | There is no limit on the maximum investment that can be made in NSC. |
| Annual investments qualify for income tax deduction under Section 80C. The interest paid on maturity is tax free in the hands of the investor. PPF comes under Exempt-Exempt-Exempt (EEE) category. | At the time of investment the amount (up to Rs. 1,50,000 per year) qualifies for income tax deduction under Section 80C. The interest paid on maturity is taxable. NSC comes under Exempt-Exempt-Tax (EET) category. |
| Partial withdrawals can be made from PPF from the 7th year onwards. | There is no facility for partial withdrawals from NSC. |
| In case of PPF, joint accounts are not allowed. | In case of NSC, the certificates can be purchased in joint names. |
| It is a good long term investment product which can be used for wealth creation or for retirement planning. | It is a good medium term investment product which can be used for specific goals like accumulating funds for children’s education and children’s marriage. |
Conclusion
Apart from tax benefits, safety, good returns and flexibility, the PPF scheme comes with lot of other benefits as discussed above. PPF serves the purpose of salaried class people as well as businessmen and self-employed persons. It serves as an excellent wealth creation and retirement planning tool. No wonder PPF is one of the most famous investment products in the country and is the darling of investors!!!!
So in case you don’t have a PPF account; open one today.
In case of any queries, either comment in the section below or email us at [email protected]
2 thoughts on “21 features of Public Provident Fund (PPF)”
I am maintaining PPF A/C at SBI since 1998. I have extrended 5 more years after completion of 15 Financial years. My a/c is maturing on 31/03/2018
Am I eligible for deductions under 80c for whatever the deposited amount
made in this a/c and when I can withdraw the entire amount from that a/c.
As it is maturing on 31/03/18, can I withdraw on 31/03/18 itself or on the next financial year beginning from 01/04/2018
You can avail deduction under Section 80C for the amount that you have deposited between 1st April 2017 to 31st March 2018. As your account is maturing on 31st March 2018, I think you should be able to withdraw money on 31st March 2018 itself.