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All about Public Provident Fund (PPF) Scheme, 2019

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Public Provident Fund (PPF) scheme is a popular long term investment-cum-tax saving option. PPF offers an investment avenue with decent returns coupled with income tax benefits. Government of India has withdrawn previous PPF rules with immediate effect. Now, the government had notified the new scheme w.e.f. 12-12-2019.

PPF deposits fall under the EEE (Exempt, Exempt, Exempt) tax category, i.e. an investor is not liable to pay tax at all three levels – investment, earning and withdrawal. Furthermore, PPF offers an attractive interest rate.

Here, we have covered features of the PPF scheme effective from 12-12-2019.

  • How many PPF accounts can be opened?

Only one PPF account can be opened by an individual in his name. Further, the additional account may be opened on behalf of each minor or a person of unsound mind of whom he is the guardian.

A person can’t open a joint PPF account.

  • How to open an account?

The PPF account can be opened by making an application in Form 1 at nationalised banks or post office. The account can be opened with a minimum initial deposit of 500 rupees. 

  • How much amount can be deposited in PPF Account?

Deposit Amount as low as Rs.500 and maximum Rs.1,50,000 in one financial year. Deposits should be in multiples of 50 rupees.

It has to be noted that the maximum limit of Rs. 1,50,000 is inclusive of account opened on behalf of the minor.

  • Can I claim a tax deduction of PPF Investment?

The investment made in PPF Scheme is eligible for deduction under Section 80C of the Income-tax Act. However, if any loan is taken against the PPF account, then any amount paid towards the repayment of such loan shall not be included in the contribution amount of PPF while determining the deduction under section 80C.

  • Is income earned on PPF taxable?

PPF deposits fall under the EEE (Exempt, Exempt, Exempt) tax category, which means an investor is not liable to pay tax at all three levels – investment, earning and withdrawal. Any amount withdrawn from the account is exempt from tax under Section 10(11).

  • What is the rate of interest in PPF Account?

Interest on deposits made under this scheme earns interest at the rate of 7.9% per annum. Interest is notified on a quarterly basis by the central government.

  • How interest is computed in PPF?

Interest on deposits made under this scheme is calculated for the calendar month on the lowest balance at the credit of an account between the close of 5th day and the last day of the month. The interest is credited to the account at the end of each financial year. The expected return from PPF scheme at the current rate of interest of 7.9% over the next 15 years has been computed in below table

Year Opening Balance Amount invested Total Interest for the year Grand total
Rs. Rs. Rs. Rs. Rs.
1 10,000 10,000 790 10,790
2 10,790 10,000 20,790 1,642 22,432
3 22,432 10,000 32,432 2,562 34,995
4 34,995 10,000 44,995 3,555 48,549
5 48,549 10,000 58,549 4,625 63,175
6 63,175 10,000 73,175 5,781 78,955
7 78,955 10,000 88,955 7,027 95,983
8 95,983 10,000 1,05,983 8,373 1,14,355
9 1,14,355 10,000 1,24,355 9,824 1,34,179
10 1,34,179 10,000 1,44,179 11,390 1,55,570
11 1,55,570 10,000 1,65,570 13,080 1,78,650
12 1,78,650 10,000 1,88,650 14,903 2,03,553
13 2,03,553 10,000 2,13,553 16,871 2,30,424
14 2,30,424 10,000 2,40,424 18,993 2,59,417
15 2,59,417 10,000 2,69,417 21,284 2,90,701
  • Whether loan can be obtained against PPF Account?

The account holder may apply for obtaining a loan, against the balance in PPF account, after the expiry of one year from the end of the year in which the initial investment was made but before the expiry of 5 years from the end of the year in which initial investment was made. The loan can be applied by furnishing details in Form-2.

In case of the account opened on behalf of a minor or a person of unsound mind, the guardian may apply for obtaining loan provided the amount is to be utilised for the benefit of such person and he shall be alive at the time of making the application.

  • What is the rate of interest on such loan?

Interest is charged at the rate of 1% per annum of the principal for the period commencing from the first day of the month in which the loan is drawn up to the last day of the month in which the last instalment of loan is repaid.

If the loan is not repaid within 36 months from the first day of the month following the month in which the loan was sanctioned, interest shall be charged at the rate of 6% per annum. Such interest shall be applicable from the first day of the month following the month in which the loan was obtained, to the last day of the month in which the loan is finally repaid.

  • How much loan can be availed against PPF balance?

The maximum amount for which the application for obtaining a loan can be made is 25% of the amount standing in the credit of the account at the end of the second year immediately preceding the year in which the loan was applied.

  • What if I don’t make any deposit in the account?

If the account holder failed to deposit the minimum amount in the subsequent years, the account shall be treated as discontinued.

  • How discontinued account may be revived?

The discontinued account may be revived during its maturity period on payment of a fee of 50 rupees along with arrears of minimum deposit of 500 rupees for each year of default. The account holder of a discontinued account shall not be eligible to open a new account before the closure of such discontinued account after maturity. Further, the facility of loan and partial withdrawal shall not be allowed in such an account and the account holder shall be prohibited from opening another account in his name under this Scheme till final closure of such account.

  • Whether I will earn interest on the discontinued account?

Balance in a discontinued account not revived by the account holder before its maturity shall continue to earn interest at the rate applicable to the Scheme from time to time.

  • What is the tenure of PPF Account?

The account opened under this scheme has a tenure of 15 years from the end of the year in which an account was opened. Accountholder will be eligible to withdraw the whole amount along with the interest due up to the last day of the month preceding the month in which the account is closed.

  • Can an account be closed pre-mature?

The account holder shall be allowed to prematurely close his account or account opened on behalf of a minor or a person of unsound mind of whom he is a guardian, on or after the expiry of 5 years from the end of the year in which the account was opened, in any of the following cases:

  1. The amount is required for the purpose of treatment of life-threatening disease of the account holder, his spouse or dependent children or parents, on the production of supporting documents and medical reports confirming such disease from treating medical authority;
  2. For higher education of the account holder, or dependent children on the production of documents and fee bills in confirmation of admission in a recognised institute of higher education in India or abroad;
  3. If there is a change in residency status of the account holder on production of a copy of Passport and Visa or Income tax return.

In case of premature closure, the interest whether credited or due shall be calculated at a rate which shall be 1% lower than the rate at which the interest has been credited in the account from time to time since the date of opening of the account. The application for premature closure of the account shall be filed in Form-5.

  • Whether balance in PPF account can be attached?

The amount standing to the credit of any account holders hall not be liable to attachment under any order or decree of any court in respect of any debt or liability incurred by the account holder.

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