Public provident fund as a savings scheme

PPF or Public Provident Fund is a scheme offered by the Government of India for savings where the Government of India pays the interest for the account holder on a quarterly basis. This scheme is also tax-free. The applicable PPF interest rate for 1st Jan to 31st March 2019 (Q4 FY 2018-19) has been fixed at 8.0%. The interest rate for January – March 2019 was also 8%.

Importance of Opening a PPF Account

• The principal and interest in the PPF account are guaranteed by the Government.
• Contributions to the account up to Rs 1.5 lakh per annum are tax free. Interest on the PPF account is also tax free.
• Interest Rate for the PPF account is declared by the Government every quarter and is 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.

How to open a PPF Account

PPF accounts can be opened a post office, nationalised banks and major private banks such as ICICI and Axis. In several banks like ICICI and Axis, you can open a PPF account online through net banking as well. Once the account is opened a passbook similar to the bank passbook is issued. All transactions such as subscription, interest, withdrawals, etc. are recorded in this passbook. Some banks simply allow PPF entries to be viewed online instead of issuing a passbook.

Documents Needed

• PPF account opening form (Form A), the same can be obtained from specified bank branches or can be downloaded online.
• ID proof
• Address proof
• Photograph of the account holder
• Nomination form

Eligibility Criteria for PPF

• Any resident of India can open a PPF account.
• PPF accounts can also be opened by parents for their minor children.
• NRIs cannot open PPF accounts. Nevertheless, a resident Indian who has become an NRI after opening a PPF account can continue the account till its maturity.
• Opening of joint accounts and multiple account is not allowed.

Minimum and Maximum Contribution

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

PPF Tenure

PPF account has a maturity period of 15 years from the end of the financial year in which 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, 2015. At maturity, you can extend the PPF account indefinitely in blocks of 5 years at a time.

Taxability & Exemption

Public Provident Fund falls under EEE 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.

Revival of Inactive Account

The PPF Account becomes inactive if the minimum contribution of Rs 500 per year is not made. A written request to reactivate the account has to be submitted at the post office or bank branch where the account is based

A fine of INR 50 for each year the account has been inactive has to be paid.

Arrears of minimum amount of INR 500 for all the years the account has been inactive have to be paid.

Transfer of PPF Account

The PPF account can be transferred from the post office to bank or vice versa. It can even be transferred between different branches of the same bank.

PPF Premature Termination

The PPF account can be closed prematurely after the lock in period of five financial years on certain grounds –

Treatment arising from serious ailments as life threatening diseases of the account holder, spouse or dependent children or parents.

For Higher education of the owner of the account or for the minor account holder.

One percent interest will be deducted from the applicable interest rate on premature closure of the PPF account.