Ppf

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Public Provident Fund (PPF) is a tax-free saving scheme regulated by the Indian Government. It is a long-term investment scheme with a lock-in period of 15 years. Individuals can start investing in PPF with a minimum amount of Rs. 500 p.a. The interest rate is set and paid by the government for every quarter. PPF interest rate for the third quarter of the year 2020-21 i.e. from 1st October to 31st December is fixed at 7.1%.

PPF Interest Rate 2020-21

PPF is a fixed income investment. The interest rate on PPF accounts is notified by the central government every quarter.

PPF Interest Rate for Q3 (October – December) of FY 2020-21 is 7.1%

Previous Year Interest Rates

Period Interest Rate
October to December 2020 7.1%
July to September 2020 7.1%
April to June 2020 7.1%
January to March 2020 7.9%
October to December 2019 7.9%
July to September 2019 7.9%
April to June 2019 8.0%
January to March 2019 8.0%

Key Features of Public Provident Fund

Here are some of the primary features of public provident fund scheme:

  • Lock-in period: A PPF account is a fixed-income, long term investment with a lock-in period of 15 years. Premature withdrawals are allowed but only in case of emergencies. This tenure can be extended by 5 years at the end of the actual lock-in period
  • Minimum and maximum investment: Individuals need to make a minimum investment of Rs. 500 annually. A maximum investment of Rs. 1.5 lakh can be made in one year in PPF account
  • Taxation: PPF comes under the Exempt-Exempt-Exempt (EEE) category of tax policy which implies that the principal amount, the maturity amount, as well as the interest earned is exempt from taxes
  • Loan against PPF: A PPF account holder can take a loan against the balance from the beginning of 3rd financial year till the end of the 6th year from the date of account opening

Eligibility Criteria

  • Only an Indian resident can only open a PPF account
  • NRIs are not eligible to open PPF accounts. However, a resident Indian who has become an NRI after opening an account can continue the account until maturity
  • Parents/guardians can also open PPF accounts for their minor children
  • Opening of joint accounts and multiple accounts are not allowed

How to Open a PPF Account

Individuals can open a PPF account at post offices, nationalized banks and major private banks like ICICI, Axis, HDFC, etc.

  • Some banks also enable online banking users to open a PPF account and access the passbook online
  • Once the account is opened, a passbook similar to the bank passbook recording all transactions such as subscriptions, interest, withdrawals, etc. will be issued.

Documents required to open a PPF Account

Here is a list of documents which should be procured at the time of opening a PPF account:

  1. PPF account opening form- Form A (This form can be obtained from any bank which is authorized to open a PPF account)
  2. KYC documents to verify the identity of the individual- Aadhaar Card, Voter ID card, or Driving License
  3. Proof of Address
  4. PAN Card
  5. Passport-size photograph of the individual
  6. Nomination form- Form E (This form can be obtained from any bank which is authorized to open a PPF account)

List of Banks that Open PPF Account

Following banks are authorized to open a PPF account for its account-holders:

Indian Overseas Bank Axis Bank State Bank of India IDBI Bank
ICICI Bank Bank of Baroda Punjab National Bank Corporation Bank
Oriental Bank of Commerce Bank of India State Bank of Bikaner & Jaipur State Bank of Hyderabad
Allahabad Bank Central Bank of India Canara Bank Union Bank of India
Indian Bank United Bank of India Dena Bank Vijaya Bank
Bank of Maharashtra State Bank of Patiala State Bank of Travancore State Bank of Mysore

How to Register for a PPF Account Online?

To open a PPF account online, you should have an account with the bank you are going to open your account. Follow the given steps to open PPF account online:

  • Log in to your net banking portal
  • Click in the option that allows you to ‘Open a PPF Account’
  • Choose the relevant option between a ‘self account’ and a ‘minor account’
  • Enter the required information such as nominee details, bank details, etc.
  • Verify details like your Permanent Account Number (PAN), etc. that is shown on the screen
  • After verifying the details, enter the amount that you wish to deposit in your PPF account
  • You will be asked to set up standing instructions that enable the bank to deduct the amount at fixed intervals or in a lump sum
  • After you make your choice, you will receive an OTP on your registered mobile number
  • Once this verification is done, your PPF account gets opened. You are advised to save the account number that is displayed on the screen for future reference
  • Certain banks may even ask you to submit the hard copy of the details entered along with the reference number and submit it to the respective bank with your KYC details

It must be noted that each bank has a relatively different process for opening a PPF account. The general steps to be followed, however, remain the same.

How to Check PPF Balance?

PPF account balance can be checked online as well as offline. Individuals can also visit the Indian Post Office to check their account balance.

Here’s how you can check your balance online:

  1. Before you begin, ensure that your net banking with your bank account is active
  2. Log in to your PPF account using your internet banking credentials
  3. Once you log in, your current PPF account balance will be displayed on the screen
  4. Logging in to your account using internet banking allows you to transfer funds to your account online, set up standing instructions for your PPF account, download your account statement, and submit your PPF loan application, etc.

Follow these steps to check account balance offline:

The bank provides a separate passbook for PPF account which comprises your account balance, account number, bank branch details, credits/debits to your account, etc. You can check your PPF account balance offline by updating this passbook.

  • The PPF passbook can be updated periodically by visiting the bank branch
  • Some banks have furnished automated passbook update machines at the banks. However, you need to visit the bank during the operating hours to get your passbook updated
  • Once updated, your PPF passbook will show all the credit/debit transactions along with the outstanding balance

Benefits of PPF Account

  • Security of Investments: Being a Government-backed scheme, the principal and interest amounts in your PPF account are guaranteed and safe
  • Tax-Free: Contributions to the account of up to Rs 1.5 lakh per annum and interest earned on the savings are both tax-free
  • High Interest: The interest rate for the PPF account is declared by the Government every quarter. It must be noted that returns are higher than FD rates of many banks in that period
  • Safe from government orders: The PPF account is immune from attachment from any order or decree of any court under the Government Savings Banks Act, 1873

Withdrawal of PPF Balance

PPF works under a mandatory lock-in period of 15 years. However, partial withdrawals can be made in emergency cases. Partial withdrawals from the account can be made after the completion of the 5th Financial year from the year in which the account is opened. For example, if the account was opened on Feb 15, 2013, withdrawal can be made from the financial year 2018-19 onwards. Only one partial withdrawal is allowed per financial year. The maximum amount that can be withdrawn per financial year is the lower of the following :

  1. 50% of the account balance as at the end of the financial year, preceding the current year, or
  2. 50% of the account balance as at the end of the 6th financial year, preceding the current year.

Form C should be submitted to withdraw a partial amount from the PPF account.

  • Details such as account number, amount of money to be withdrawn, etc. are to be mentioned in the form
  • A declaration stating that no other amounts were withdrawn during the same financial year should also be submitted
  • In case, the account is in the name of the minor, additional declaration stating that the amount is required for the use of minor child who is still a minor and is alive
  • Passbook is also required to be submitted along with the form

Extension of PPF

PPF account matures after 15 years from the end of the financial year in which the account was opened. At the time of maturity, the account holder has the option to extend the tenure in the blocks of 5 years:

Extension of PPF with contribution: A subscriber can extend the life of the PPF account indefinitely in blocks of 5 years at a time. The subscriber has to submit a request to extend the account, with further contributions by submitting Form H.

  • The choice of extension with contribution has to be made within one year from the date of maturity, otherwise, the default choice of extension without further contribution applies
  • Once the account is extended with contributions, the maximum 60% of the balance as on the date of extension of the account can be withdrawn
  • This amount can be withdrawn in one go or can be spread over several years
  • A maximum of one withdrawal can be made in a year

Extension of PPF without further contribution: If no choice is made, then the default choice, .i.e. extension without further contribution applies.

  • You do not need to fill any form to choose this option
  • A maximum of one withdrawal is allowed per year and any amount up to the total balance in the account can be withdrawn

Once the PPF account is renewed with/without contribution, the option cannot be switched, i.e. from with contribution to without contribution or vice versa.

In case the amount is deposited in the account without choosing the correct option, no interest will be payable on such amount. Also, no deduction under the Income Tax Act will be available on such contributions.

Loan Against PPF

The facility to avail loan against the PPF account is available from a 3rd financial year up to 6th financial year from the date of opening the account. A second loan can be obtained only after the closure of the first loan.

For example, if the PF account is opened on Jan 1, 2012 (FY 2011-12), the end of the financial year in which the account was opened is Mar 31, 2012. The loan can be taken from 1st April 2013 (FY 2013 – 14) onwards. Five years from the end of the financial year in which account was opened on March 31, 2018 (FY 2017 – 18). Thus, the loan can be obtained from Mar 31, 2013, to Mar 31, 2018. The maximum tenure of such a loan is 36 months.

  • Form D must be submitted to avail loan against the PPF account
  • The form requires details such as account number, the amount being borrowed, etc along with the undertaking that the amount will be repaid with interest within three years
  • The maximum amount of loan that can be availed against PPF accounts is 25% of the balance at the end of the 2nd financial year preceding the year in which the loan was applied for
  • In the above example, if the investor wants to take the loan in April 2013, the maximum loan that can be availed is 25% of the balance as on Mar 31, 2012

Interest on Loan

  • The interest rate payable on loans taken against PPF accounts is 2% higher than the prevailing interest rate. For example, if the prevailing interest rate is 8%, then interest payable on loan taken on such account would be 10%
  • Before Nov 30, 2011, this rate was 1% higher than the prevailing interest rate. Hence, in case of loans taken before the said date, the interest charged would be 1% above the prevailing rate
  • The interest is not paid with the principal amount in EMIs
  • Once the principal amount is fully repaid the interest has to be repaid within 2 months
  • In case the loan is not repaid within 36 months, interest at 6% more than the prevailing interest rate of PPF account is charged

Taxation of PPF

  • Public Provident Fund falls under EEE (i.e. exempt-exempt-exempt) regime of taxation, i.e. Exempt-exempt-exempt
  • Contribution to the 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 must be mentioned on the income tax return

Other Important Points to Keep in Mind

  • PPF Nomination

Nomination can be made in favour of one or more person(s). In case, more than one person is appointed as a nominee, the percentage share of each nominee should be specified.

  1. Nominations cannot be made for the minor’s PPF account
  2. Parent, spouse, relatives, children, friends, etc. of the account holder can be nominated
  3. The account holder must submit Form E to add a nominee to the PPF account
  4. Nomination can be made at any time during the tenure of account. Change, cancellation or alteration in nomination can be done through Form F
  5. Nomination forms need to be signed by the account holder and two witnesses. Signature of the nominees is not required
  6. After being duly filled, the form must be submitted at the appropriate bank/post office branch
  • Transfer of PPF

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

  • Closure of PPF Account

Premature closure of PPF accounts is not permitted within 5 years of opening the account. Thereafter it can only be closed on specific grounds such as life-threatening ailments affecting the account holder, spouse, dependent children or parents. Supporting medical documents have to be produced to support a claim on these grounds.

  • The revival of Inactive PPF Account

The PPF Account becomes inactive if the minimum contribution of Rs 500 per year is not made. To revive an inactive PPF account,

  1. A written request to reactivate the account should be submitted at the post office or the bank branch where the account is based
  2. A fine of INR 50 for each year the account has been inactive has to be paid
  3. Arrears of minimum amount of INR 500 for all the years the account has been inactive have to be paid

What are the alternatives of PPF?

Public Provident Fund is one of the most secure investment schemes regularized by the Government of India. Nonetheless, many new schemes and investment options have been introduced over the last few years which are capable of providing higher returns, have a low lock-in period and also help you save on taxes. Let us find out more about the alternative schemes to PPF:

PPF V/S NPS

Parameters PPF NPS
Eligibility Only Indian Citizens Indian citizens and NRIs
Minimum Age No age limit 18-60 years
Interest rate 7.1% for Q3, FY 20-21 10-12% (market-linked)
Annual contribution Max.- Rs.1.5 lakh p.a Minimum Rs.6000
Taxation Tax-free Contributions are deducted from taxable income
Safety Government-backed; fixed income; high safety Depend on market fluctuations; low safety
Lock-in period 15 years Up to the age of 60 years

PPF V/S FD

Parameters FD PPF
Interest Rate 3.30% to 8.25%; depends upon individual banks, keeps on changing 7.1% for Q3, FY20-21
Annual Contribution Not fixed Maximum Rs. 1.5 Lakh
Liquidity High Low
Tax Implication TDS Applicable Tax-free investment
Lock-in Period 7 days to 10 years 15 years
Safety of Investment High Safety High Safety

PPF V/S ELSS

Parameters ELSS PPF
Current Interest Rate Not Fixed 7.1% for Q3, FY20-21
Lock-in period 3 Years 15 Years
Risk Factor Moderate Low
Tax Implication Up to Rs. 1.5 lakh in ELSS is eligible for deduction from taxable income in the financial year Exempt-Exempt-Exempt category. The principal amount, interest earned and maturity amount are exempt from taxes
Premature Withdrawals Not allowed Allowed after completion of 5 years of continuous contributions