Public Provident Fund (PPF) is such a long term investment that any Individual (whether Salaried or Self-Employed) can invest and earn a handsome tax-free return.
PPF Scheme is a statutory scheme of the Indian Government under the provisions of the Public Provident Fund Act, 1968. This scheme was introduced by the central government of India in 1968.
Where can I open PPF Account?
- To open a PPF account, drop by a State Bank of India branch. SBI’s subsidiary banks can also open accounts. A list of these subsidiary banks is available on the bank’s Web site. You can even visit the nationalised bank in your neighborhood. Selected branches of nationalised banks can also open accounts. The head post office or selection grade sub-post offices also open PPF accounts.
- You will have to fill up a form. You can take a look or download the form from SBI’s web site. Along with the form, attach a photograph and submit your Permanent Account Number. If you do not have a PAN, then furnish an attested copy of your ration card, voter’s identity card or passport. When you open an account, you will be given a passbook (just like a bank pass book) in which all subscriptions, interest accrued, withdrawals and loans are recorded.
Who is eligible and who is not?
- Any Individual (whether Salaried or Self-Employed or any other category) can invest in this scheme. HUFs are no more allowed to open any PPF account.
- NRI’s are not allowed to subscribe to PPF Account. However, if someone opens a PPF Account while he is a Resident of India but subsequently becomes a NRI, he shall be allowed to continue investing in his account.
- You can have only one PPF account in your name. If, at any point, it is detected that you have two accounts, the second account you have opened will be closed, and you will be refunded only the principal amount, not the interest.
- You cannot open a joint account with another individual. The account can only be opened in one person’s name. You are free to nominate one or more individuals. On the death of the account holder, nominees cannot keep the account going by making contributions. If there are no nominees, the legal heirs get the money. You can open one account for yourself and others for your child/ children. But, on your death, your children cannot make any additional contributions.
What is the rate of Interest?
Recently there were some changes made in the PPF interest rates i.e. w.e.f 1st April 2012 the new PPF rate of interest became 8.80% pa compounded annually. Till 1st Dec 2011 the maximum limit investemnt into PPF was Rs. 70,000 pa, but then it increased to Rs. 1,00,000 along with its rate of interest from 8.00% pa to 8.60% pa. Current maximum limit of investment has been kept at Rs. 1,00,000 pa.
Update March 25, 2013; w.e.f April 1, 2013 PPF interest rate has been kept at 8.70% compounded annually.
How much can I invest in a PPF Account?
The minimum amount to be deposited in this account is Rs. 500 per year. The maximum amount one can deposit every year is Rs. 1,00,000 w.e.f 1st Dec 2011. Total of 12 deposits can be made in a financial year. After a/c opening passbook will be given with all entries like deposits, loans, withdrawals, repayment etc.
Is it possible to transfer funds/invest in PPF Account online?
Yes, it is possible in case the PPF account is at SBI only. PPF account opened other than SBI, then it would not be possible, because only SBI is authorised to get online payments for PPF. You can also add the PPF account of your spouse and children in the bank account to make the online payment. You can do this simply using the Third Party Transfer or NEFT (National Electronic Funds Transfer).
Is there any specific term to continue?
The PPF account is valid for 15 years. The entire balance can be withdrawn on maturity, that is, after 15 years of the close of the financial year in which you opened the account. So, if you opened it in FY 2011-12 (this financial year), you will be able to withdraw it 15 years later, starting March 31, 2012 (end of this financial year). That means your PPF matures on April 1, 2027. It can be extended for a period of five years after that. During these five years, you earn the rate of interest and can also make fresh deposits. Once your account expires, you can open a new one.
Is withdrawal from PPF Account between the terms possible?
Withdrawal is permissible from seventh financial year from the year of opening, limited to one in a financial year. Amount of withdrawal is limited to 50% of balance at the end of the fourth preceding year less amount of outstanding loan or 50% of balance at the end of immediate preceding year of withdrawal less amount of outstanding loan, if any whichever is less. If the account extended beyond 15 years; partial withdrawal allowed up to 60% of the balance to the credit at the commencement of the extended period (block of five years).
Is it possible to open a PPF Account in the name of a minor?
Yes, you can open a PPF account on behalf of a minor child as a guardian or parent(s). No Nomination shall be made in respect of an account opened on behalf of minor. Nomination can be made in the name of one or more persons. Nominee cannot continue account of the deceased subscriber in his/ her own name. If nomination is not made in case of death of the a/c holder, upto Rs.1 lakh will be given to legal heirs.
Is loan available on PPF Account?
Loans can be availed from the 3rd financial year excluding the year of deposit. Amount of such loans must not exceed 25 percent of the amount that stood to the account holder’s credit at the end of the second year immediately preceding the year in which the loan is applied for.
A fresh loan is not allowed when a previous loan or interest is outstanding.
Can I get tax benefit by investing in PPF Account?
- Benefit u/s 80C – The Investments made in PPF Account are eligible for deduction subject to the maximum limit or Rs. 1,00,000 pa u/s 80C.
- Tax Free Interest – No Tax is payable on the Interest Earned on PPF Account.