What is PPF ?
The full form of PPF is Public Provident Fund Scheme. It is a scheme of the Central Government, framed under the PPF Act of 1968. PPF is a government backed, long term small savings scheme which was initially started by the Government to provide retirement security to self employed individuals and workers in the unorganized sector. However, at present it is considered as the best tax saving scheme across all sections of the people who needs to invest to save some tax.
Public Provident Fund Rules / PPF Guidelines / Special Features of PPF Account :
· It is a 15 years scheme. Thus, as per normal rules, Public Provident Fund (PPF) account gets matured after the completion of 15 years from the end of the year in which the account was opened. However, on maturity this period can be extended any number of times for a block of 5 years each time. This can be done by submitting Form H within one year from the date of maturity.
· No premature closure of the account is allowed.Only in the case of the death of a customer, their nominee /legal heir can close the account by submitting the required documents as guided by the Ministry of Finance.
· At any point in your life, you are allowed to have only one PPF account in your name. (If at any time it is found that you have more than one account in your own name, the second account will be immediately deactivated, and you will be eligible to get only principal amount).
· You can open an account in the name of a minor child of whom you are the parent / guardian. However that will be the child's account, you will simply be the guardian. You can never have a joint account.
· A minimum yearly deposit of Rs. 500 is required to open and maintain a PPF account
· A maximum deposit of Rs.150000/ can be made in a PPF account in any given financial year. As per PPF rules, you are just not allowed to invest more than Rs 1.5 lac in your own PPF account or any other PPF account where you are guardian. Thus, if you have two children and you have also opened PPF account in their names, you should deposit maximum of Rs 1.5 lac in all three accounts together. Although technically, it is possible that one can deposit Rs 1.5 lac in each of such accounts as no one stops you from doing it. However, as an abundant caution, you should be aware that if in future it comes to the notice that you have been avoiding the rules, you might not get any interest on the excess amount.
· The entire balance can be withdrawn on maturity. Interest received is tax free
· Deposit to PPF is tax deductible for individual assessees in India u/s 80C of Income Tax Act, 1961.
What are the benefits of PPF Account or What Kind of Tax Rebates / Concessions are available on deposits in PPF accounts ?
· Deposits upto Rs 1,50,000 p.a. into your PPF account are deductible under Section 80C of Income Tax Act. Contributions to PPF accounts of even the spouse and / or children are also eligible for tax deduction.
· Even the interest earned in the PPF accounts i.e. on the full balance in your PPF account is completely exempt from tax. In other words, your returns on investment in PPF are tax free.
· Above all, the balance in PPF account cannot be attached to any claim in case of debt or liability. Thus the money is yours for life or even after death it is available for your family.
What is the biggest draw back of the PPF Scheme ?
It is a long term investment, and thus people who are ready to block the funds for longer tenure should opt for this scheme. Although part withdrawals and loans are allowed, yet these are available only as a small percentage of the total balance. Thus, PPF scheme is considered as illiquid.
Moreover, the rate of interest allowed on PPF account has been less than the inflation rate for number of years recently, and thus, some consider these to be negative returns.
[Inspite of these drawbacks, PPF is considered as the top scheme for the investors who wish to save tax through Section 80C or earn tax free interest]
What is the rate of interest on PPF Accounts / What is the current interest for PPF Scheme ?
The rate of interest payable on PPF balances is fixed on yearly basis. PPF intersest rates are announced every year by RBI in the month of March for the upcoming financial year. Rate of interest for the financial year 2015-16 is 8.7%.
Interest on PPF is calculated on the minimum balance in your account between the 5th and the last day of every month, Therefore, in case you wish to deposit large amount at any time of the year, ensure that you invest (i.e. your PPF account is credited with the investment amount) on or before the 5th of that month, so that you are able to earn interest for the entire month.
Withdrawals from Public Provident Fund Accounts? What is the schedule for such withdrawals?
Yes, one can make one withdrawal per year starting from your seventh year. The first withdrawal can be done after the expiry of 5 full financial years from the end of the year in which your initial subscription was made. The amount of withdrawal will be limited to 50% of the balance at credit at the end of the fourth year immediately preceding the year in which the amount is to be withdrawn, or the balance at the end of the preceding year, whichever is lower, Thereafter, you can make one withdrawal per year. The withdrawal amounts are not repayable.
What are the options available to the subscriber on maturity of the PPF account i.e. at the end of 15 years period from the end of the year of subscription :
A subscriber has three options at the maturity of the PPF account :-
(a) He / she can withdraw the maturity amount, or (b) he / she can extend the account by a 5 year block, as many times as he / she wants and make fresh contributions every year , or (c) he / she can extend the account without making any further contributions, and continue to earn interest on it every year.
Some interesting features of these are :-
· In case a person decide to withdraw your money, your maturity value is exempt from tax.
· In case the person decides to extend his / her account and continue making fresh contributions, he can extend it for a block of 5 years at a time, as many times as he wish. He can also make withdrawals from the account, upto 60% of the account balance that was there at the beginning of the extended period. The period can be extended by submitting Form H before one year passes from the maturity date.
· In case the person chooses to extend the account without making any fresh contributions, you can do this too. In this case, amount can be withdrawn any restrictions, but only once every year. The left over balance will continue to earn interest till it is withdrawn.
PPF rules provide as under for above eventualities :
"Subject to the provisions of sub-paragraph (3) a subscriber may, on the expiry of 15 years from the end of the year in which the initial subscription was made but before then expiry of one year thereafter, may exercise an option with the Accounts Office in Form H, or as near thereto as possible, that he would continue to subscribe for a further block period of 5 years according to the limits of subscription specified in paragraph 3."
And also regarding withdrawals during these extension periods, here is the rule:
"In the event of a subscriber opting to subscribe for the aforesaid block period he shall be eligible to make partial withdrawals not exceeding one every year by applying to the Accounts Office in Form C, or as near thereto as possible, subject to the condition that the total of the withdrawals, during the 5 year block period, shall not exceed 60 percent of the balance at his credit at the commencement of the said period."