PPF stands for Public Provident Fund. It is a best investment scheme introduced by the central government for the welfare of the individuals. Launched in 1968 by Ministry of Finance in India, PPF comes under the Public Provident Fund Act. The most important motive behind the establishment of PPF is to provide financial security for the self-employed individuals after retirement, by promoting savings. The main benefit one enjoys in this scheme is, under section 80C of Income Tax Act, deposits made on PPF account are eligible for tax deduction and under section 10, the interest received on deposits are also exempted from tax.
Public Provident Fund (PPF) Accounts
PPF serves as one of the common savings platform among the Indians by providing accounts which are tax exempted, safe and hassle-free. As the scheme is introduced by the government to motivate savings among the employed ones, the minimum initial deposit amount needed is very small and reasonable. One can open PPF account at any state-owned, official banks and branches or else in post offices. Also, accounts can be opened in certain private banks too. To earn proceeds, one has to deposit the amount in PPF account for a particular period of time.In order to open PPF account, one has to fill up necessary forms, submit related papers and deposit a minimum amount at the bank or office where the account is opened. There is no age limit for opening PPF account. The rate of interest for PPF will be declared by the government every financial year and it is calculated as per the earnings of government securities.
Key Features of the PPF Scheme
Some of the key features of PPF scheme are listed below.
- Rate of Interest: The rate of interest is declared by the central government every year. The interest rate is added annually. The rate of interest for the year 2016-2017 is 8.1% and for the year 2017-2018, the interest rate is 7.8%.
- Duration: The maturity period is 15 years and it can be prolonged to 5 years and so on within one year of maturity.
- Initial Deposit: The initial deposit amount is Rs.100 which is to be deposited while opening account.
- Yearly Deposit amount: The minimum deposit amount is Rs.500 and the maximum deposit amount is Rs.1,50,000 per financial year.
- Deposit Period: The deposit should be made each year and it is to be continued for 15 years in order to maintain active account. If not, the account will turn inactive.
- Deposit Type: Deposit can be made either as lumpsum or monthly installments through cheque, cash, post, demand draft, or online fund transfer.
- PPF Withdrawal: Withdrawal is allowed every year from the 7th financial year,since the year of opening account. Full withdrawal of PPF amount is permissible only at maturity.
- Tax Benefits: Deposits on PPF account and interest earned on deposits are exempted from tax. Also, no tax on PPF withdrawal.
- Nominee: The account holder can nominate a person while opening account or later.
- Transfer of Funds: Funds can be moved easily from one bank branch or post office to another at no cost. But it cannot be moved between persons.
- Loan Facility: Loan facility is available from the 3rd financial year.
- Extension: Extension is available additionally for 5 years.
- Joint Account: Joint accounts are not accepted.
Benefits of Investing in a PPF Scheme
- Effective gains: The maturity period of 15 years help for bulk savings. And the addition of interest annually, facilitates for effective gains.
- Post-Retirement security: Extended duration, additional interest, tax deducted proceeds and fund security provides financial security after retirement.
- Tax exemptions: Deposits made on PPF account, interest on deposit and PPF withdrawals are free from tax.
- Safety: As it is the scheme organized by government, the funds are safe and thus minimizes risks.
- Hassle-Free: PPF accounts can be opened at any state-owned banks, private banks or post offices. Also, accounts can be opened in online.
- No attachment: No attachment under court decree order.
Eligibility to Open a PPF Account
To open a PPF account, the individual must be a resident Indian and the minimum age limit for major is 18 years. There is no maximum age limit. Also, minors can open PPF accounts. The age limit for minors is below 18 years. The maximum annual deposit limit of Rs.1,50,000 can be deposited in the minor and major’s/guardian’s account together.Foreigners and non-resident Indians are not allowed to open PPF accounts. Resident Indians who open their PPF accounts and later settled in foreign countries are allowed to keep up their account until the maturity period of 15 years. No extensions are available for non-resident Indians. HUFs (Hindu Undivided Family) are not accepted to open PPF accounts in effect from 2005. PPF accounts opened by HUFs before 2005 can be continued until the maturity period without any extensions.
What are the Documents Needed for open PPF account
To open a PPF account, certain documents are needed, for example, evidences for identity, address and signature. The evidences may be,
- A recent passport size photo
- Aadhaar card, PAN card, Passport, Driving license, Voter ID, Ration card, Signed cheque, Bank account statement, Employer’s letter, Rental/lease contract, Utility bills.
- Forms including account opening form, nomination form in case of any nominees and paying in slip.
- Apart from these documents, if needed, banks may also demand for some other documents. Age proof is required to open PPF account for minors. Birth certificate/school certificate serves as the age proof for minors.
There are eight different forms available for PPF from A to H. Forms may vary depending upon the purpose.
Form A- For opening new account
This form is used to open a fresh PPF account. The account holder has to fill in the details such as name, address, PAN card and signature. The deposit amount has to be stated. For minors, details such as the name of the minor, guardian and his relationship with the account holder are needed. If the account opener is an agent, then the name of the agent is to be included.
Form B- For deposits and repayment of loans
This form is used to make deposits in PPF account. The deposit includes savings, loan repayment and payment of fine to reactivate the account. Accounts remain active only when investments are made annually. Loan facility is available from the 3rd financial year of account opening. The deposit mode can be anything, for instance, cheque, cash, post, DD, or internet banking. The payment mode is to be notified in the paying in slip. The name of the agent and code has to be specified in the form if the account is opened and deposits are made via agent.
Form C- For partial withdrawals
This form is used to make partial withdrawals from the PPF account. Partial withdrawals are allowed from the 7th year of account opening. The account holder has to fill in the account number and the amount to be withdrawn from the account. Also, a declaration has to be submitted along with it, saying that no withdrawals are made previously in that year.
Form D- For claiming loan
This form is used to claim loan from the PPF account. Loans are available from the 3rd year of account opening. Particulars such as the account number, loan amount are to be filled along with an agreement stating that the loan amount will be repaid in 3 years with interest, according to the guidelines.
Form E- For nominating a person
This form is used to choose the nominee for the PPF account. For a single PPF account, above one nominee can be added. The details of the nominees such as name, address and their relation to the applicant has to be stated in the form. The account holder must also state the percentage of PPF amount to be settled for each nominee. No nominations for minor’s PPF account.
Form F- For making any changes in nomination details
This form is used to make any changes in the nominations. With this form, the account holder can cancel or modify the nominees or else can change the percentage of amount allotted to each nominee. The applicant has to specify the date of previous nomination made in the PPF account in order to cancel it. One can either add or remove a nominee whenever needed during the PPF period.
Form G- For claiming PPF amount by the Nominee
This form is used by the nominee to claim the PPF amount after the death of the account holder. The names of the nominees are to be filled in the form. The form requires verification from the applicant that the account holder’s death certificate has been attached.
Form H- For the expansion of maturity period
This form is used to extend the maturity period additionally for 5 years. Though the maturity period is limited only for 15 years, choices are available to increase the maturity period with extra 5 years. For this, the account holder has to fill in the PPF account number and account opening date.
Interest Rates for PPF Accounts
Every year, the central government will announce the interest rate for PPF. The interest is added for each year and towards the end of the financial year, it will be credited. The rate of interest may subject to change for each period. Deposits made previous to the 5th of a particular month are taken into account for calculations. So, it is wise to make deposits from 1st to 5th of the May to get the best earnings. The rate of interest for the year 2016-2017 is 8.1% per annum and for the year 2017-2018, the interest rate is 7.8% per annum. Also, the earned interest in the PPF account is free from tax. Earlier the investments, more will be the yielding.
PPF Calculator is a free tool available in online. This tool is provided in the bank or post office portal or in the third party financial assistance site. Investors can make use of this online tool to calculate the returns.
- It helps to calculate the interest one can earn on deposit and the maturity amount.
- The calculated results appear in the form of charts and tables and it is easy to figure out the deposit, interest earn on deposit and maturity amount.
- Also, one can calculate how much returns can be earned if the maturity period is extended.
- By using PPF calculator, the returns from the investment can be compared with the returns from other savings scheme and one can choose the better scheme for best results.
- As the rate of interest varies for each year, PPF calculator helps to calculate the PPF amount after the maturity period.
- Account holders, by making use of this tool can calculate the loan amount and withdrawals.
Where to Open PPF Account?
PPF account can be opened in banks or post offices or in online.
Open PPF Account through Bank/Post office
PPF accounts can be opened in approved banks or else in post office, which act as government agencies. For opening account, you need to get the necessary forms and is to be filled in. The required documents have to be submitted. The initial deposit amount is to be deposited while opening the account.
Open PPF Account via Online
Now-a-days, accessing PPF accounts in online has become popular among the people. By accessing the bank’s official site or by using third party service provider, one can open PPF account online. It can be done in online by using internet banking service.
What are the Minimum and Maximum Amount for PPF Deposits?
The minimum amount for PPF deposit per year is Rs.500 whereas the maximum deposit per year is Rs.1,50,000. Deposits can be made either as full amount or in monthly installments. The account will be inactive if one fail to pay deposit amount for a year. To turn the account active, one has to pay penalty.
PPF Account in the Name of Minor
The PPF account for minors can be opened either by father or mother on behalf of the minor. Only one account is allowed for minors. Also, grandparents are not permissible to open PPF account for minors unless they are legal guardians.
How Many Accounts One Can Open?
A person can open only one PPF account either in bank or post office. The account holder must declare it in the form while opening the account. A person having PPF account in bank cannot open in post office and other way around. If two accounts are opened by mistake, the latter account will turn inactive and it will not hold any interest rate if the two accounts are not merged into one. Regarding this, one has to get consent from the Ministry of Finance.
Premature Closure of PPF Account
Premature closure of PPF account is possible only on the following conditions.
- The account must have covered five years
- If the account holder, spouse, children or parents suffer from deadly disease or treatment of dangerous disease, one can close the account by submitting medical reports.
- If the amount is needed by the account holder for higher education in India or in a foreign country, one can close the account by providing the fee bill as confirmation.
Nomination for PPF
While opening PPF account, nomination process can be done by using Form E, as Form A cannot have any options for nomination. To avoid any last-minute hurry-burry, the account holder must nominate a person by filling Form E in the beginning itself.