PPF Account Rules

Public Provident Fund (PPF) is one of the most popular investment alternatives for approximately many decades now. It is seen that whether it is an aggressive investor or conservative one, both prefer investing in PPF.

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If you closely observe the reasons for the same, you will realize that all types of investors opt for Public Provident Fund (PPF) account because of any of the following reasons:

  • Tax-free nature of the income generated through PPF
  • The tax benefit is given on the principal amount that is invested
  • The interest that you earn by investing in PPF

However, before you start investing in it, you must know the below PPF rules:

  • Reasons for Irregular PPF Account: Your PPF account may become irregular in four cases:
    • First: As per PPF rules, it is not allowed to open more than one PPF accounts in one name. Whenever the post office notices the second account with the same name as first, it makes the second account as irregular and it should be merged with the first account. However, parents can open more than one PPF accounts with the name of their minor children.
    • Second: Depositing more than Rs.1.5 Lakhs in a PPF account can make the account irregular and the extra amount is refunded without any interest. It is suggested to not to exceed the limit even when you are making the contribution for self and minor child as in this case the combined saving cannot be more than Rs.1.5 Lakh in a financial year.
    • Third: At the time of extension of the policy, which means at the time of maturity (after 15 years), if you keep on contributing in your PPF account without any intimation to the post office, then this contribution will not be treated as regular. In this case, the amount will be refunded but without interest.
    • Fourth: According to PPF rules, it does not entertain any kind of joint holdings, but the nominees are allowed. This rule is valid even in the case of the minor child.

PPF Accounts Premature Closure:

For several decades, it was possible to take a loan against the balance in your PPF account. Moreover, you were allowed to make partial withdrawals after a certain time period. However, in the year 2016, the PPF rules were amended and the premature closure of the PPF account was made possible. According to this amendment, you can perform premature closure of your PPF account any time after five years of account opening in extreme cases such as treatment of threatening disease of the account holder, dependent children, spouse, or parents, or for the higher education of children. However, the premature closure of the PPF account must be subject to the deduction of the amount that is equivalent to 1% less interest in the interest rates applicable from time to time.

Discontinued PPF Account – How to Revive It?:

A PPF account is treated as a discontinued account when you stop contributing at least Rs.500 in every financial year. In this way, being a 15-year scheme, if you keep investing at least Rs.500 once in every financial year, your account remains alive. However, the balance in your PPF account gets interest even in the case of discontinuation of account and the amount is available for withdrawal only at the time of maturity. All the features of a PPF account such as partial withdrawals, exit, or loans get restricted unless you renew or revive the account. To renew the account, you have to pay a penalty of Rs.50 for every non-contributory year, Rs.500 as arrear of every non- contributory year and for the year wherein you have revived the account, you have to pay Rs.500.

These are three must know PPF rules for revival, premature closure, and irregular PPF account. However, let us now know some of the basic rules of PPF account:

The Date of Maturity:

If you have a PPF account, then you must know its lock-in period of 15 years. However, the catch related to its maturity date is, it is not calculated from the date of PPF account opening instead it is taken from the end of the financial year in which you have made the deposit in your PPF account. It is irrespective of the month and date of account opening. For example, if you have started making contributions in your PPF account from 15th July’2014, then the 15 years lock-in period will be calculated from the 31st of March’2015. Therefore, the maturity date in such situation will be 01st of April’ 2030.

Number of Contributions:

If you make an annual contribution in your PPF account then you make 16 contributions during the tenure of your PPF, not 15 contributions. To understand this, take the above example again since the lock-in period starts from the financial year end in which you have made the deposit, then the deposit that you have made on 15th July’ 2014 is your first contribution. The next contribution is that you have made in the financial year 2015 – 16 and the third contribution is the one that you have made in the financial year 2016 – 17, and so on. Finally, the last contribution, which is the 16th contribution, will be made on 2029 – 30. The same pattern is followed for monthly contribution wherein a total of 192 contributions (16 x 12) are made during 15 years tenure of a PPF account.

Total Contribution:

According to PPF rules, a minim of Rs.500 contribution has to be made in every financial year. However, the maximum allowed limit is Rs.1.5 Lakh/ year. You can make the contribution of Rs.1.5 lakh either in your name or on the behalf of your minor child. A lump sum contribution can be made annually or monthly.

Eligibility Criteria:

You can open a PPF account only if you are a resident individual of India however joint ownership is not allowed. A minor with a guardian can open a PPF account. The guardian can only be either father or mother of the minor or a guardian appointed by the court. A grandfather or grandmother is not eligible to open a PPF account on the behalf of his/her grandchildren unless both the parents of that child are no more. Hindu Undivided Family, Non-resident Indian, and Body of Individuals are not eligible to open a PPF account. Earlier, the government has passed a rule that your PPF account gets closed as soon as you get the status of NRI. However, the finance ministry has temporarily dismissed this order on 23rd February’ 2018.

Calculation of Interest:

It is suggested to invest in the PPF account before the fifth of every month if one wishes to contribute monthly. In the case of annual investment, it is recommended to invest before the 5th of April of every financial year. Despite the credit of interest on 31st March of every financial year, it is calculated according to a monthly basis. However, for every contribution that is made after the above-mentioned date limit is not eligible to generate any interest. The government of India has fixed the interest rate for 2017 – 18 October to December quarter as 7.8% per year.

Partial Withdrawals:

Despite the lock-in period of 15 years, PPF also allows partial withdrawals and loan against PPF account. However, there are certain conditions and PPF rules that you have to follow in order to avail such facilities. The rate of interest charged on the loan taken against a PPF account is more than 2% of the earned interest on the scheme. You become eligible for partial withdrawals from the 7th However, if you have partially withdrawn some amount from your PPF account, then you cannot get a loan. In addition to this, a fresh loan is passed only if you have paid off the previous loan. In one financial year, only one partial withdrawal is allowed.

Tax on Withdrawals:

Since PPF has EEE status, thus any withdrawal that you made before the completion of the lock-in period is eligible for tax deduction. However, while filing an income tax return, you have to mention partial withdrawals.

Transfer of PPF Account:

You are allowed to transfer your PPF account from bank to post office or vice-versa. In the same way, you can transfer your PPF account from one bank to another or from one branch of a bank to its branch.

5 Years Extension:

You can extend the maturity period of your PPF account in 5 years block. You can extend it for N number of times in the block of 5 years. In a block of 5 years, you can make withdrawals once in every year. However, the amount that you are withdrawing during the tenure of 5 years should not exceed 60% of the amount that was there in the starting of the block.

Final Words:  

PPF is for those who want long term investment to fulfill their future goals. So, keep these points or facts in mind and enjoy the benefits of one of the safest investment option.

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