Public Provident Fund (PPF) – What to Know?

Written by Chandrakant Mallya on December 16, 2010 in Finance | 12 Comments

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The Public Provident Fund Scheme is one of the most popular forms of tax saving investments. The amount deposited in this account qualifies for exemption from tax; in addition, the interest earned is tax-free. It is a safe form of investment, the statutory scheme being run by Government of India as per the provisions of the PPF Act, 1968.

All Branches of State Bank India, its subsidiary banks, some of the designated branches of nationalized banks, and designated post offices are authorized to open PPF accounts.
Simple procedure for opening the account: Fill up the prescribed form, attach a photograph, and record the Permanent Account Number (PAN). If you have no PAN, an attested copy of ration card, voter identity card or passport is acceptable. You are issued a passbook, just like the one you get for Savings Bank Accounts, wherein all transactions are recorded.
One account per individual is allowed. If one dares for the second account, and if it is detected, the 2^nd account is liable to be closed and the amount refunded, but without interest.
Joint accounts are not permitted but nomination facility is available. Can nominate one or more individuals.
The minimum deposit per year is Rs.500/-; the maximum is Rs. 70,000/- The present rate of interest is 8% per annum, compounded annually, but it varies, as per the decision of the Government. It is notified by the Ministry of Finance, each year. As per present indications, it is likely to be increased by 1%, for the current financial year.
Twelve deposits in a year are allowed; no need to deposit the entire amount (subject to the maximum limit) in lump sum.
The limitation of the account is 15 years. The balance can be withdrawn with the interest accrued at the end of this period. Further extension in the block by five years each time, is permissible, under normal terms and conditions. Fill up form H for the purpose. You can open a fresh account, on maturity of the previous account.
No withdrawals are permitted until 7 years. Thereafter 50% withdrawals are allowed. Loan on the account can be availed in the 3^rd year of opening the account, up to the limitation of 1/4^th of the balance standing at the credit, as per rules governing such loans.
Deposits by cheque/draft are permitted.
On default, if deposits are not made into the account, the account is treated as discontinued, but it can be closed only after completion of 15 years. Such accounts can however be activated by payment of fees for default @ Rs.50/- for each defaulted year.
Account in the name of minor can be opened by the guardian. When the amount is sought to be withdrawn a prescribed certificate that the amount is required for the use of the minor, who is alive and is still a minor, needs to be furnished.
A PPF Account cannot be opened or operated by a power of attorney holder.
No age limit is prescribed to open the account.
Closure of the account is not permitted, except upon depositor’s death.
When the account is matured, it can continue without further deposits. It will earn the rate of interests as applicable to the PPF accounts. One withdrawal in a financial year in such accounts is permitted.
Transfer of accounts from Post office to Bank, one bank to another Bank, or with another Branch of the same Bank, is permitted.
Rebate under section 80-C of Income Tax Act is allowed for PPF Accounts. They are also exempt from Wealth Tax.530
The balance in this account is free from attachment orders from the court for any liability or debt.

Some disadvantages

Interest rates keep on changing as per the decision of the Finance Ministry. Initially the rate was 12% and now it is as low as 8%. But this is not an arbitrary decision applicable to PPF alone. It goes in tandem with the overall decline of interest rates on deposits in other sectors.
The lock-in period is lengthy; though it is 15 year account, it works out to 16 years in effect.

Tags: ppf, Provident Fund, Provident Fund Scheme, Public Provident Fund, Public Provident Fund Scheme

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12 Responses

Joginder Pal Gupta
March 18, 2011 at 5:59 pm

For persons of low income group the rate of interest on PPF deposits should be very encouraging.When the rates EPF are so high as compared to that of PPF then why the Govt. is giving step motherly treatment to persons who make their earnings from very tiny resources.After all self earning persons are also the citizens of the same Country/Province/City or Village.
- Chandrakant Mallya
  March 22, 2011 at 9:24 am
  
  I entirely agree with you Joginder Pal Guptaji. The self-employed persons always get stick from the government. Since the government employees are better organized through trade unions, they succeed in getting the rules framed which benefit them. The people must teach a lesson to such a government through Elections and double-dealing governments need to be thrown out of power. Protest letters should be sent to the Finance Ministry and your area MP/MLA
Dinesh Chandra
March 10, 2011 at 3:20 pm

My son requested transfer of account from central bank of India, mumbai to union bank, meerut i, in Jan.and even paid the necessary fees for obtaining past details as required by CBI. The account details and draft for the amount was transferred and recieved in Union Bank Meerut. However, the account details are from the date of computerisation and not from the date of opening of account. Union Bank, Meerut are insisting that they must have all details from date of opening of acccount without which they cannot open account. CBI,Mum are unable to provide those details. As a result the money is lying with ubi, Meerut without any account.This would result in my loosing interest for the year ending 31 March,2011 and my being unable to deposit this years instalment loosing the tax benefits. The total loss is likely to be over 1 Lakh rupees. What am I supposed to do?
- Chandrakant Mallya
  March 22, 2011 at 5:12 pm
  
  Your son must have been issued with a pass book at the time of opening of the PPF account(before computerization of the accounting system) If that was deposited with the Central Bank of India, Mumbai at the time of seeking the transfer of account to Union Bank, Meerut. Please get this fact verified. Where is the pass book anyway, if it was not deposited with Central Bank, Mumbai? If none of the Bank is willing to help you, I suggest you send a complaint to the Department of Banking Operations and Development,Parliament Street, New Delhi, explaining the position with copies of letters marked to both the Banks, holding them responsible for your losses. The Consumer’s Court at Meerut should help you.
  
  Thanks.
CBT
January 31, 2011 at 7:55 pm

Your article on PPF was very informative. Thanks for the same. Regarding PPF, can you please provide the following information :

1) My PPF account has matured on 31/03/2010, but I have not closed it till now. If I close it, say on 01/03/2011, at what rate will I get interest for the period from 31/03/2010 to 01/03/2011 ? 8% or 3.5% ?

2) After maturity, if I want to choose the option “Continue the PPF account without making any further contribution”, do I have to submit any form or application ?

3) Do you have any updated information about the provisions of new direct tax code applicable to PPF ? Is the provision of EET going to be implemented from 01/04/2011 for PPF Accounts ?

Please reply at the earliest.

Thanks in advance.

CBT
- Chandrakant Mallya
  January 31, 2011 at 9:39 pm
  
  Kindly get in touch with the nearest Branch of State Bank of India.For points 1 & 2, I think permission/intimation in writing is necessary. As for point 3, the latest about it can be known through a tax consultant or SBI Manager might be knowing about it, as they get updated information through circulars issued periodically on the subject of PPF.
  
  Thanks.
Bharti Mittal
December 30, 2010 at 1:24 pm

Can anyone please help with the employee’s PF account. What if I had to open another PF account with my new employer. Then if now I change my job can I transfer my first PF account to my current employer and transfer the money of the second PF account to the first one. Or what other option will I have.

Thanks,
Bharti
- Chandrakant Mallya
  December 30, 2010 at 2:16 pm
  
  Bharti Mittal, you are probably referring to the account opened under Employees Provident Fund Act, 1952. Yes, such accounts can be transferred. There must be an Office of the Regional Provident Fund Commissioner at the city where you are working. Normally, the HRD or the Establishment Section of your Office(old or new) must know these procedures. Anyway, the transfer can be done.
anand bhushan
December 19, 2010 at 11:24 am

can “HUF” open ppf account with the same benefit
- Chandrakant Mallya
  December 19, 2010 at 8:57 pm
  
  Dear Anand Bhushan,
  The finance ministry has said that 15-year Public Provident Fund (PPF) accounts of Hindu Undivided Families (HUFs) will be closed by the end of fiscal 2011. The new PPF Act amendment, the ministry says will be effective December 7 onwards.
  
  “The move is aimed at discouraging HUF investments in PPF,” the ministry explained, adding that the cut-off date for PPF HUF accounts had been fixed on May 13, 2005.
  To the best of my knowledge, PPF accounts can be opened by:
  1.Single
  2.Joint(Two or more)
  3.Minor with parent/guardian.
  
  Thanks.
mith
December 18, 2010 at 12:10 pm

in present situation due to globalisation people earn more as compare to earlier, so naturally knowledge about the investment is very essential, because lots of chit fund are open in our country who never follow the guidelines of RBI, so investment in PPF is not only a savings but also availed benefit from paying tax.
- Chandrakant Mallya
  December 18, 2010 at 5:42 pm
  
  Mith, your observation is 100% right. About the Chit Funds and Finance Companies less said the better. They have ruined the lives of many thousands of investors.
  
  PPF is safe and good. Tax benefits are the added attraction.
  
  Thanks for your comments.