All about Public Provident Fund (PPF)

What is it?

• It is a 15 year account designed as an instrument of long term savings.
• It helps to inculcate a habit of savings and build a retirement corpus.
• PPF is easy to open and operate and transferable between different banks, branches or post office.
• The maturity proceeds are tax free.

Who can open a PPF account?

• Any Indian citizen older than 18 years of age can open a PPF account in their name.
• Joint accounts are not permissible under PPF rules.
• Parents can open PPF on behalf of their children, however the total deposit jointly cannot exceed Rs.1.5 lakh in their own and their child’s account.
• An NRI cannot open a fresh PPF account but if they have acquired NRI status after opening the account, then they can continue to operate it but the tenure cannot be extended after maturation.
• Grandparents cannot open account on behalf of minor grandchildren.

Where can you open a PPF account?

• Account can be opened in post offices as well as designated branches of nationalized and private banks authorized to operate PPF account

What are the documents required to open a PPF account?

• ID proof
• Address proof
• PAN card
• Photographs
• Proforma application
• Nomination from

Interest rate

• Till now the interest rate was announced by government every year. It was 8.7 % per annum for financial year (FY) 15-16. Beginning, FY 16-17 the rate will be announced by the government every quarter. The interest rate was brought to 8.1% in the third quarter of FY 16-17.
• The interest rate is compounded yearly.

The table below shows the PPF interest since the last 15 years. As you can see the interest rate has remained in the range of around 8% per annum over this period.

Financial Year	Interest rate (per annum)
2000 – 2001	11.00%
2001 – 2002	9.50%
2002 – 2003	9.00%
2003 – 2004	8.00%
2004 – 2005	8.00%
2005 – 2006	8.00%
2006 – 2007	8.00%
2007 – 2008	8.00%
2008 – 2009	8.00%
2009 – 2010	8.00%
2010 – 2011	8.00%
2011 – 2012	8.60%
2012 – 2013	8.80%
2013 – 2014	8.70%
2014 – 2015	8.70%
2015 – 2016	8.70%
2016 – 2017	8.10%

How much do you have to contribute?

• A fee of Rs. 100 is charged to open a PPF account.
• A minimum of Rs. 500 has to be deposited in a fiscal to keep the account active; a maximum of Rs. 1.5 lakh is allowed in a financial year. 
• Deposits can be made in one lump sum or in 12 installments.

Deposit mode

• Cash
• Demand Draft (DD)
• Online transfer
• Cheque (date of clearance taken as deposit date)

Default

• On defaulting on payment the account can be revived by paying a fee of Rs. 50 and depositing minimum amount of Rs. 500 for every year defaulted.

Tax treatment

• Deposits qualify for deduction from income tax under Section 80 C of IT Act.
• Interest is completely tax free.

Withdrawal

• Withdrawal is permissible every year from 7th financial year without the need to deposit it back. Up to 50% can be withdrawn of the balance on last financial year.
• The withdrawal amount is limited to 50% of the balance at the end of the 4th 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.
• The withdrawals are not required to be paid back.
• In case of extension for 5 year block after maturity a withdrawal of up to 60% (account balance at starting of block period) either in lump sum or staggered limited to once a year can be made.

Loan against your PPF account

• Loan facility is available from 3rd financial year up to end of 6th financial year.
• The loan amount is 25% of the balance in the end of the preceding financial year including interest.
• The loan taken has to be paid in lump sum or two or more monthly installments within 36 months of taking the loan.
• Interest is payable in not more than two installments.
• The interest payable is 2% more than the interest rate on your PPF. For example today you can get a loan at an interest rate of 10.1% (8.1% +2%).

Attachment of a PPF account

• PPF account cannot be attached under any court decree or the other order; hence it is safe and available for your family at any point of time.

Maturation

• A PPF account matures on completion of 15 complete financial years from the end of the year in which the account was opened.

Extension

• Account can be extended, after maturity, for any number of block periods of 5 years with further deposits.
• The account can be retained indefinitely without further deposit after maturity with prevailing rate of interest. However if the five year block option is not exercised after within an year of maturity, they cannot opt for the next block of five years and no further deposits will be accepted. The account will continue to earn interest and withdrawal can be made once a year till accounts is closed.

New account

• Another account cannot be opened after completion of 15 years if the earlier is not closed since there is already a facility of extension of account by block of 5 years. If the older account is closed only then the new account can be opened.

Premature closure

• It is not allowed under normal circumstances, even after default on payments.
• It is allowed in case of death of account holder on submitting proper documents and proofs relatives.
• According to new rules under extraordinary circumstances such as education or serious ailment the account can be allowed to close with forgoing of 1% interest as penalty.