PPF(Public Provident Fund)account and its benefit

 

What is PPF account?

The Public Provident Fund (PPF) Scheme, 2019 is a tax-free savings avenue that was introduced by the Ministry of Finance (MoF) in India in the year 1968 and revised on 2019. Interest earned on deposits in the PPF account is not taxable. Deposits made towards PPF accounts may be claimed for tax exemptions. This makes the PPF Scheme one of the most tax efficient instruments in India. It was launched to encourage savings among Indians in general, especially to encourage them to create a retirement corpus.

 

What is the eligibility for PPF account?

·   Only individuals in their own name as well as on behalf of a minor can open the account at all the Branches of our bank.

·         As per extant instructions, opening of PPF accounts in the name of Hindu Undivided Family is not permitted since 13th May 2005. However, accounts opened prior to 13.05.2005 in the name of HUF may continue subscription till the date of maturity. However, the account cannot be extended further.

·         W.e.f. 25.07.2003, Non-Residents are not eligible for opening of PPF account.

How many PPF accounts can be opened by an Individual?

Only one account can be opened in one name across the Banking industry as well as Post Offices. An individual can open only one PPF account in his/her name. This account may be opened in a Post Office or State Bank of India or any other authorized bank. However more than one account is permissible if the account has been opened in the name of the minor children by their natural guardian.

 

Whether PPF can be opened by jointly?

 

A PPF account cannot be opened in joint names of two or more persons.

 

Whether PPF account can be opened in the name of minor?

 

Accounts can be opened for minors. Minors are those below the age of 18 years. However, the maximum limit of Rs.1.5 lakhs per year applies to deposits made in the minor and the major’s/guardian’s account, collectively. Grandparents cannot open an account in the names of their minor grandchildren.

 

What is the investment limit in PPF account?

 

A minimum of Rs.500/- subject to a maximum of Rs.1.50 lac per annum may be deposited. The subscriber should not deposit more than Rs.1.50 lac per annum as the excess amount will neither earn any interest nor will be eligible for rebate under Income Tax Act.The amount can be deposited in lump sum or in multiple installments per year in multiple of Rs.50/-.

 

What the duration of the PPF account?

 

The duration of the scheme is 15 years excluding the FY, in which the account has been opened. Accordingly all PPF Account opened during the FY will fall matured on 1st April after completion of complete 15 Financial Years However, if the subscriber wishes to continue beyond 15 years he/she can give an application in Form-4 (Annexure-), where it canbe extended for 1 or more blocks of 5 years each. However, the option can be exercised during the same FY, in which the account has got matured. Thereafter, depositor cannot get their account extended and the account will not be available for further subscription. However, he will continue to earn interest till the date of closure of the account.

 

What is the Rate of Interest of the PPF account?

 

Rate of Interest is fixed based on notification of Government of India in their official gazette on quarterly basis and the same will be uniformly applicable to all the accounts for that quarter mentioned in the gazette. Interest will be paid annually on the last working day of each Financial Year and compounded annually. Interest is calculated on the minimum balance available in the account between 5th day and end of the month.

 

What is the Tax benefit of the PPF account?

 

Amount deposited in PPF Account may be claimed as exemption under Section 80C of IT Act. Interest accrued in PPF Account is fully exempted under Section 10 (11) of IT Act. Amount outstanding to the credit is fully exempted from Wealth Tax also.

 

Can I make nomination in the PPF account?

 

Nomination can be made by an eligible PPF subscriber in favour of any number of nominees without any restriction on the number of nominees. However, the shares of nominees may be specified by the subscriber.

 

 Nomination facility is not available for the PPF accounts held in the name of minors.

 A subscriber cannot nominate trust as nominee.

 A subscriber can modify/cancel the existing nomination at any time.

 If the nominee is a minor, the subscriber of the PPF Account may appoint any person to receive the amount due under the account in the event of death of the subscriber during the minority of the nominee.

 

Is PPF account transferable?

 

The PPF account can be transferred among the branches/ other banks or Post Offices and vice versa upon receiving the request. The service is free of charges. In such case, all the properties of the erstwhile transferred PPF account will remain same except the service provider. As the date of opening of account, maturity date, applicability of Loan and Withdrawal facility will remain unchanged.

 

What are the withdrawal rules in PPF account?

 

Partial withdrawals are permitted after the expiry of five years from end of the year in which initial subscription was made. The subscriber may apply for withdrawal in Form-2.The subscriber can withdraw up to 50% of account balance held at the end of 4th year immediately preceding the year when withdrawal request is made, or balance on last year, whichever is lower.

 

When we can close the PPF account?

 

Any time after expiry of 15 years from the end of the year in which the initial subscription was made, a subscriber, if he/she so desires, may apply in Form-3, together with his Passbook, for withdrawal of the entire balance with interest up to the last month.

 

Whether premature closure of PPF account is allowed?

 

A subscriber will be allowed for premature closure of PPF account, only if:

 

 The subscriber dies before the account runs its full tenure. In such event the nominee/legal heirs of the account holder can apply for premature closure of account.

 

 In case, the subscriber himself or herself wants to close the account prematurely, he or she can do so only if the money is required for treatment of a life threatening ailment of subscriber himself/herself or his/her spouse or dependent children or parents. For such closure medical documents from a competent medical authority are mandatory.

 

 The account can also be closed prematurely for covering expenses for higher education of account holder. For high education, it is mandatory to submit fee bills and documents confirming admission to a recognized college/university in India/abroad.

 

 Premature account closure attracts a penalty of 1% being deducted from the interest earned on the deposits that have been made in the account from the date of opening till premature closure except in case of death.

 

 

Provided that such premature closure shall be allowed only after the account has completed five financial years except in case of death of the depositors.

 

Can we take loan against the amount deposited in PPF account?

 

Any time after expiry of one year, from the end of the year in which the initial subscription was made but before expiry of 5 years from the end of the year in which the initial subscription was made, a subscriber may apply in Form-2, together with his Passbook for obtaining a loan not exceeding 25% of the amount that stood to his credit at the end of second year immediately preceding the year in which the loan is applied for.

 

How to repay the loan against PPF?

 

·         The Principal amount of the loan under the scheme shall be repaid by the subscriber before the expiry of 36 months. The repayment may be made in lump sum or in installments within the period of 36 months. After the principal is fully repaid, the interest can be paid in two monthly installments.

 

·         After the principal of the loan is fully repaid, the subscriber shall pay interest thereon in not more than two monthly installments at the rate of 1% per annum of the principal for the period commencing from the first day of the month following the month in which the loan is drawn up to the last day of the month in which the last installment of the loan is repaid.

 

·   Provided that where the loan is repaid, only in part within the prescribed period of thirty six months, interest on the amount of loan outstanding shall be charged at 6% per annum instead of 1% per annum from the first day of the month following the month in which the loan was obtained to the last day of the month in which the loan is finally repaid.