PPF-Public Provident Fund, Interest on PPF, Eligibility Criteria

PPF-Public Provident Fund

A PPF or Public Provident Fund is a tax-free savings scheme offered by the Government of India, wherein interest on the account is set for every quarter and is paid by the government. The applicable interest rate on PPF for the first quarter of the year, 2020-21 i.e. from 1st April to 31st June 2020 has been fixed at 7.1%. The interest rate for January to March 2020 was 7.9%.

Interest on PPF

PPF is a fixed income investment. The interest rate on PPF account is notified by the central government every quarter.

Interest on PPF is calculated monthly on the lowest balance between the close of the fifth day and the last day of every month, i.e. for the purpose of interest calculation. However, the amount that is deposited into the account before 5th of the month is only considered. So if any money is deposited on 6th of a month, then no interest will be paid on that amount in the respective month. Hence it is advised that deposits should be made between 1st and 5th of the month to maximize the returns.

Eligibility Criteria

Any individual who is a resident of India can only open a PPF account
NRIs are not eligible to open PPF accounts. However, a resident Indian who has become an NRI after opening a PPF account can continue the account till maturity
Additionally, parents/guardians can also open PPF accounts for their minor children
Opening of joint accounts and multiple accounts are not allowed

Minimum and Maximum Contribution

The minimum annual contribution that can be made to a PPF account is Rs. 500 while the maximum is capped at Rs. 1.5 lakh. The maximum limit applies to contributions made by a person for himself and for a minor child, both. There can be a maximum of 12 contributions in a year.

PPF Tenure

PPF account matures after the expiry of 15 years from the end of the financial year in which the account was opened. For example, if the PPF account was opened on Jan 1, 2010, it will mature on March 31, 2025, i.e. 15 years from March 31, 2010. At maturity, you can extend the PPF account indefinitely in blocks of 5 years at a time.

Documents Required

PPF account opening form (Form A) can be obtained from specified bank branches or can be downloaded online.
  1. ID proof
  2. Address proof
  3. Photograph of the account holder
  4. Nomination form

Benefits of opening a PPF Account

Being a Government-backed scheme, the principal and interest amounts in your PPF account are guaranteed and safe
Contributions to the account of up to Rs 1.5 lakh per annum and interest earned on the savings are both tax-free
Interest rate for the PPF account is declared by the Government every quarter. It must be noted that PPF returns are higher than FD rates of many banks in that period
The PPF account is immune from attachment from any order or decree of any court under the Government Savings Banks Act, 1873

PPF Login and Registration Process

To open a PPF account online, you must follow the given steps:
  1. You must have an account with the bank you are going to open your PPF account
  2. Log in to your net banking portal
  3. Click in the option that allows you to ‘Open a PPF Account’
  4. Choose the relevant option between a ‘self account’ and a ‘minor account’
  5. Enter the required information such as nominee details, bank details, etc.
  6. Verify details like your Permanent Account Number (PAN), etc. that is shown on the screen
  7. After verifying the details, enter the amount that you wish to deposit in your PPF account
  8. You will be asked to set up standing instructions that enable the bank to deduct the amount at fixed intervals or in lump sum
  9. After you make your choice, you will receive an OTP on your registered mobile number
  10. Once this verification is done, your PPF account gets opened. You are advised to save the account number that is displayed on the screen for future reference
  11. Certain banks may even ask you to submit the hard copy of the details entered along with the reference number and submit it to the respective bank with your KYC details
  12. It must be noted that each bank has a relatively different process for opening of PPF account. The general steps to be followed, however remain the same.

Taxability & Exemption

Public Provident Fund falls under EEE (i.e. exempt-exempt-exempt) regime of taxation, i.e. Exempt-exempt-exempt. Contribution to PPF account (up to Rs 1.5 lakh per annum) is eligible for deduction under section 80C of Income Tax Act, interest earned is exempted and maturity proceeds are also exempted from tax. The interest earned on the PPF account must be mentioned on the income tax return.

Maturity of Account

PPF account matures after a period of 15 years from the end of the financial year in which the account was opened. At the time of maturity, the account holder has three options:

Withdrawal of maturity amount: 

The account holder can withdraw the PPF amount along with the interest accrued thereon. The entire maturity proceeds are exempt from tax.

Extension of PPF with contribution: 

A subscriber can extend the life of the PPF account indefinitely in blocks of 5 years at a time. The subscriber has to submit a request to extend the account, with further contributions by submitting Form H. The choice of extension with contribution has to be made within one year from the date of maturity, otherwise the default choice of extension without further contribution applies. Once the account is extended with contributions, maximum 60% of the balance as on the date of extension of the account can be withdrawn. This amount can be withdrawn in one go or can be spread over several years. A maximum of one withdrawal can be made in a year.

Extension of PPF without further contribution: 

If no choice is made, then the default choice, .i.e. extension without further contribution applies. You do not need to fill any form to choose this option. A maximum of one withdrawal is allowed per year and any amount up to the total balance in the account can be withdrawn.
Once the PPF account is renewed with/without contribution, the option cannot be switched, i.e. from with contribution to without contribution or vice versa.
In case the amount is deposited in the PPF account without choosing the correct option, no interest will be payable on such amount. Also, no deduction under Income Tax Act will be available on such contribution.

Premature Termination

The PPF account can be closed prematurely after completion of five financial years on the following grounds:
  1. Treatment of serious ailments or life threatening diseases of the account holder, spouse or dependent children or parents
  2. Higher education of the account holder or the minor account holder.
  3. One percent interest will be deducted from the applicable interest rate on the premature closure of the PPF account

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