All You Wanted To Know About Public Provident Fund (PPF)

What is PPF?

Meant for general public, Public Provident Fund or PPF as popularly known is a long-term, government backed savings scheme started with the objective of providing old age income security to the workers in the unorganized sector and self employed individuals.

Who can open a PPF account?

A PPF account can be opened by an individual (salaried or non-salaried). An individual can open only one PPF account to which he contributes. A PPF account can also be opened in the name of your spouse or children.

Where a PPF account can be opened?

It can be opened at any branch of the State Bank of India (SBI) or branches of it’s associated banks like the State Bank of Mysore or Hyderabad. The account can also be opened at the branches of a few nationalized banks, like the Bank of India, Central Bank of India and Bank of Baroda, and at any head post office or general post office.

What is the duration of the investment?

People who are interested in liquidity or short term would not be very keen about PPF because the duration for the investment is 15 years. However, the effective period works out to 16 years i.e., the year of opening the account and adding 15 years to it. The contribution made in the 16th financial year will not earn any interest but one can take advantage of the tax rebate.

The account holder has an option to extend the PPF account for any period in a block of 5 years after the minimum duration elapses. The account holder can retain the account after maturity for any period without making any further deposits. The balance in the account will continue to earn interest at normal rate as admissible on PPF account till the account is closed.

What is the minimum and maximum amount of deposit?

The minimum deposit that you can make into a PPF account in one whole financial year is Rs. 500 and the maximum is Rs. 100,000.

What are the tax benefits from PPF?

The amount you invest is eligible for deduction under the Rs. 1, 00,000 limit of Section 80C. On maturity, the entire amount including the interest is non-taxable.

Is it possible to withdraw the amount deposited at any time during the tenure?
Yes. You can take a loan on the PPF from the third year of opening your account to the sixth year. So, if the account is opened during the financial year 2009-10, the first loan can be taken during financial year 2011-12 (the financial year is from April 1 to March 31).
The loan amount will be up to a maximum of 25% of the balance in your account at the end of the first financial year. You can make withdrawals during any one year from the sixth year.
You are allowed to withdraw 50% of the balance at the end of the fourth year, preceding the year in which the amount is withdrawn or the end of the preceding year whichever is lower. For e.g., if the account was opened in 2000-01, and the first withdrawal was made during 2006-07, the amount you can withdraw is limited to 50% of the balance as on March 31, 2003, or March 31, 2006, whichever is lower.

Is the benefit of Tax Deduction under section 80C of the Income Tax Act available to a spouse when he or she contributes to the Public Provident Fund account maintained by the other?

Permissible! The benefit under Section 80C is admissible to both, a husband contributing to the wife's account and the wife contributing to the husband's account. However, there is one condition, the contributions should be made out of the contributor's taxable income.

If one wishes to continue a PPF account after the completion of a15 years tenure, is it better to go for extension in blocks of five years or should one start a fresh account after closing the previous one?

If you close the account and open another fresh PPF account, you have access to 100% of your account balance, while extending the same account for a block of five years give you access to only 60% of your account balance at that time. This means that a large amount of money gets blocked for five years. Starting a fresh account gives you the opportunity to decide the amount you want to invest with the entire maturity amount at your disposal. This is an important factor keeping in mind the recent interest rate cut

For how many years can a PPF account be extended after the initial 15 years of operating a PPF account?

After the PPF account has been in operation for 15 years, it can be extended for a duration of five years at a time. There is no limit, extensions can be taken any number of times.

Can I open an account in the name of a minor?

Certainly. Under the Public Provident Fund Scheme, an individual may open one Public Provident Fund account on behalf of a minor child of whom he is the guardian. It may be reiterated that only one account may be opened in one name. Thus, if a guardian opens an account on behalf of a minor child, another guardian cannot open an account on behalf of the same minor child.

Some more facts about PPF:

Investment in one or more installments up to a maximum of 12 installments in a year can be done.

Nomination facility is available in the name of one or more persons.

Nominee cannot continue the account of the deceased PPF account holder in his/her name.

Transferability

The account may be transferred at the request of the account holder free of charge by one branch of State Bank of India or its associates to a head post office or vice versa.

Revival of Discontinued Account

The discontinued account can be revived on payment of Rs. 50 per year along with arrears of subscription of Rs. 500 per year.

Attachment

It is free from attachment by a court in respect of any debt or liability incurred by the account holder. However it is subject to attachment under the orders of the income tax authorities.

Be Smart & Intelligent With Your Money.
Your Life! Your Money! Your Way!