Everything you want to know about Public Provident Fund
Public Provident Fund or PPF is a product of choice for self employed professionals to build their retirement corpus who don’t have option to invest in Employee Provident Fund. Scheme is suitable for investors who are looking for steady returns from their investment without taking any risk. PPF is also popular among salaried employee s as it has several unique features. PPF is free from court attachment.
Who can open a PPF account
Any resident Individual can open the account in his or her name or in the name of minor child. Non Resident Indians (NRIs) are not allowed to open a PPF account but an Individual who opens a PPF account and subsequently becomes NRI can continue the account till its original maturity but cannot extent the account after its maturity. Only one Public Provident Fund (PPF) account can be maintained by an Individual, except an account that is opened on behalf of a minor. Mother and Father both cannot open PPF accounts on behalf of the same minor. Also, Grand-parents cannot open a Public Provident Fund (PPF) account on behalf of minor grand-child; however, in case of death of both the Father and Mother, Grand-parents can open a PPF account as guardians of the Grand-child. HUF cannot open new PPF account but who have already opened account before 13th May 2005 can continue their account till maturity.
How to open a PPF account
Account can be opened in Post office, State bank of India and its subsidiaries, designated branches or some nationalised bank and ICIC Bank. Following documents are required for opening a PPF account.
· PPF account opening form (Form A )
· Nomination Form
· Passport size photograph
· Copy of PAN card/ form 60-61
· ID proof and Residence proof as per Bank’s KYC norms
Once opened account can be transferred from one branch to another branch or one bank to another back in same city or different city.
Minimum a and Maximum Investment amount
Subscriber has to invest minimum Rs. 500 every year in the account. Maximum limit to invest in PPF account is Rs. 1 lakh with effect from 1st December 2012. If you do not deposit the minimum amount, then you would need to pay fees of Rs. 50 for each year in which you did not invest the minimum required amount along with arrears. For instance you didn’t deposit any amount in the previous year, then in the current year you will have invest Rs. 500 as arrear and Rs. 50 as penalty along with subscription for the current year. You can invest in PPF in lump sum or multiple installments however; maximum number of installments in a year cannot exceed 12. Deposit amounts should be in multiple of Rs. 5. It can be deposited in cash, cheque or via demand draft.
Rate of Interest on PPF account
Central Government specifies in the Official Gazette from time to time the Interest rate which shall be provided on the balances in PPF account and the same is 8.70% for Financial Year 2013-14. The interest is calculated on lowest balance in the PPF account between 5th and last day of the month and credited in the account on last working day of the financial year. In simple word if you deposit an amount after 5th in any month then you will not get interest on that amount for that month. Interest is compounded annually.
The historic rates provided on PPF accounts were :
01.04.1986 to 14.01.2000 12%
15.01.2000 to 28.02.2001 11%
01.03.2001 to 28.02.2002 9.5%
01.03.2002 to 28.02.2003 9%
01.03.2003 to 30.11.2011 8%
01.12.2011 to 31.03.2012 8.6%
01.04.2012 to 31.03.2013 8.8%
Term of account
Account matures after 15 years from the end of year in which account is opened and it can be extended for one or more blocks of 5 years with or without contribution. PPF Account can be discontinued before maturity but the balance in account along with interest will be repaid only after 15 years. Only in the case of the death of a customer, their nominee or legal heir can close the account by submitting the required documents as guided by the Ministry of Finance.
Loan and withdrawals
Subscriber can avail loan upto 25% of balance at the end of second previous year. Loan facility is available only between third financial year to sixth financial. Second loan can be taken only after the first loan is fully repaid. The rate of interest charged on loan taken by the subscriber of a PPF account on or after 01.12.2011 is 2% p.a. above the prevailing interest rate on PPF investment. However, the rate of interest of 1% p.a. shall continue to be charged on the loans taken on or before 30.11.2011. Customer can make one withdrawal every year, from the 7th financial year, of an amount that does not exceed 50% of the balance in the account at end of the previous year or fourth previous year of withdrawal, whichever is lower. If the account is extended beyond 15 years then partial withdrawal is allowed up to 60% of the balance in the account at the beginning of the extended period, in lump sum or spread over the block of 5 years.
Online Facility
Some banks like SBI, ICICI and IDBI offer you the convenience of viewing your PPF account balance and transferring funds online from your savings account to your PPF account through net banking. You can also give Standing Instructions on SB or Current account for transferring a fixed amount from your saving bank account to your PPF account on periodical basis.
Nomination Facility
Nomination can be made the name of one or more persons. Nominee will receive the balance amount in the account on death of the subscriber but cannot continue account of the deceased subscriber in his/ her own name.
Tax Benefits
An amount deposited in PPF account up to Rs. 1 lakh is eligible for claiming deduction under section 80C of Income Tax Act. Further, interest credited in PPF account is also exempted from Tax. Hence PPF investment comes in the category of Exempt-Exempt- Exempt (EEE). That means the amount you invest in PPF is exempted from tax in the year of investment as you claim deduction under section 80 C, interest credited in your account is aslo exempted from tax and maturity proceeds is also tax free.
