Public Provident Fund (PPF)

 

Public  Provident Fund
   
Who Can Open PPF Account HUF : Until 13 May 2005, HUFs could also invest into PPF. However subsequent to that date HUF can no longer open fresh PPF accounts. Existing PPF accounts of HUFs shall not be renewed after the expiry of the initial duration of the PPF.
  Minor : Parents of a Minor can open a PPF account on behalf of a Minor and can deposit funds into Minor’s PPF account.
  NRIs :  NRIs can not open a PPF account (Click here to read the Govt Circular) However, if a resident who already has a PPF account and subsequently becomes a NRI, he can continue to invest into PPF till the initial duration (first 15 years) of the PPF expires. After that, the PPF account can not be renewed and would need to be liquidated. The investment into PPF would be on Non Repatriable basis only.
Minimum & Maximum Investment Amount

The minimum subscription for PPF has been changed to Rs. 100

Central Government has vide Notification No. GSR 225(E)Dated – 13-3-2014  fixed  initial minimum subscription in PPF at Rs. 100 by amending the para 4 of Public Provident Fund Scheme 1968. Earlier there was no minimum fixed amount of deposit for opening of PPF account but the condition was that  amount of initial subscription shall be integral multiples of Rs.5.  The notification Further allows online/ electronic payment in PPF Account if account holder is maintaining account with a Bank or Post office working on Core Banking platform.  Related Notification is as follows :-

Notification N0. GSR 225(E)Dated – 13-3-2014

Minimum Amount- You need to deposit a minimum of Rs. 500 per year in a PPF account. If you do not deposit the minimum amount, then you would need to pay a fees of Rs. 50 for each year the minimum amount has not been deposited along with arrears. For example, if you paid in Rs. 400 in year 1, Rs. 200 in year 2 and Rs. 0 in third year. You would need to pay into your PPF account fees of Rs. 50 per year where you did not pay the minimum Rs. 500. In the example, you would have to pay Rs. 150 as fees. Additionally, you would have to deposit Rs. 100, Rs. 300 and Rs. 500 as arrears for year 1,2 & 3 as the amount deposited fell short of Rs. 500.

 

Maximum amount - which you can deposit in a PPF account is Rs. 100,000. The reason being, it is a small savings scheme and is not meant for rich people to enrich further by depositing large funds without paying tax on the interest on the funds.

Note: The maximum amount which can be dposited in PPF account is increased to Rs. 150,000.00 in Budget 2014  (Click here to read the Govt Circular) 

Interest Rate 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. The interest is computed on lowest balance in the PPF account between 5th and end of the month. For example, if you had Rs. 3 lac in your PPF account on 1 Jan 2012 and you deposited Rs. 50K on 10th Jan. Your month end balance was Rs. 3.5 lac. You shall be provided interest on Rs. 3 lac for the month of January.The interest amount is credited into the PPF account on an annual basis. Hence PPF interest is compounded on an annual basis. The current interest rate provided on PPF account is 8.7% (from 01-April-2014 to 31-Mar-2015).  There is no change in the interest rate for FY 2013-14
 Withdrawal of Funds PPF account is meant to be a long term investment option and hence the rules on withdrawal are not as favourable as you may want them to me. Broadly, the following rules apply to withdrawal of funds invested into PPF account :
  1. After expiry of 5 years from the date of opening of PPF account. The amount of withdrawal shall be 50% of the balance standing to the credit of the account at the end of 4 years preceding the date of withdrawal or at end of preceding year (which ever is lower).
  2. Not more than 1 withdrawal can be made in a year.
  3. After the expiry of 15 years duration when the PPF account gets matured and the entire funds can be withdrawn from the account.
Maturity & Extension of PPF Account A PPF account has an initial maturity of 15 years. After 15 years, you have the following two options :
  1. Encash the total maturity proceeds of the PPF accoun; OR
  2. Within 1 year from date of expiry of 15 years, apply for continuing to deposit in the PPF account for further block period of 5 years. After the expiry of 5 years, you can continue to extend the duration of the PPF account by 5 years. There is no limit to the number of such extensions. For example, if you opened a PPF account in year 2000, then it would mature in year 2015. In year 2015 you would have an option to encash your PPF balance or to extend the maturity of PPF for 5 years upto 2020. This decision would have to be taken by you upto 2016 (within 1 year after maturity). After 2020, you can continue to extend your PPF account to years 2025, 2030 and so on.
Loans Against PPF balance Though PPF is a long term investment it offers options to the investors to obtain the much required liquidity in the way of obtaining loan against PPF account balance. Specifically :
  1. Subscriber to a PPF account and take a loan upto 25% of the balance which would need to be paid back within 36 months.
  2. Interest payable on PPF Loan is 2% per annum (1% upto 2012). If the loan is not repaid back, the interest is charged at 6% per annum.
  You may not rejoice by hearing these low interest rates. You are actually paying (PPF interest + 2%) as the balance. The reason behind it is two-fold. First you are not paid PPF interest on the amount which you have withdrawn as loan (hence 8.8% interest not paid). Second you end up paying 2% as interest. Hence the total interest paid by you is actually 10.8%.
Nomination Just like all other financial instruments, it is vital that you register your nominee in your PPF account. 
  A subscriber can nominate one ore more people as nominees in his PPF account who can receive the funds lying to the credit of the PPF account after the death of the subscriber.
  This nomination can be cancelled / updated at any time by filing a fresh nomination request at the respective Bank.
  No nomination can be made in a Minor’s PPF account
  If the subscriber of an account dies without registering a nominee, the funds lying to the credit of the PPF account shall be paid to the legal hiers. However, only an amount upto Rs. 1 lac shall be paid of the submission of (i) a letter of indemnity, (ii) an affidavit, (iii) a letter of disclaimer on affidavit, and (iv) a certificate of death of subscriber. You may note that if the amount if greater than Rs. 1 lac, the legal heirs would have to prove themselves as the LEGAL HEIR which in most cases require extensive court proceedings. Hence to avoid future hassles, it is always a good idea to have a nominee in your PPF account.
List of Banks Offering PPF account facility State Bank of India, State Bank of Patiala ,State Bank of Bikaner & Jaipur, State Bank of Travancore, State Bank of Hyderabad, State Bank of Mysore, Andhra Bank, Allahabad Bank, Bank of Baroda, Bank of India, Bank of Maharashtra, Canara Bank, Central Bank of India, Corporation Bank, Dena Bank, Indian Bank, Indian Overseas Bank, Punjab National Bank, Syndicate Bank, UCO Bank, Union Bank of India, United Bank of India, Vijaya Bank, IDBI Bank Ltd, ICICI Bank Ltd.
Tax Treatment  U/s 80 C upto Rs. 100,000 Interest income and maturity proceeds are exempted from tax
How Does Interest Accure The interest on your PPF balance is compounded annually, but the calculation is done every month. The interest is calculated on the lowest balance between the fifth and last day of every month. So, if you invest before the 5th, the contribution will earn interest for that month too. Otherwise, it’s like an interest-free loan to the government for a month. If you are investing through a cheque, make sure you deposit it 3-4 days before the cut-off date. If your bank is lethargic in crediting the amount to your PPF account, your investment might miss the deadline

Note:  Interest rates and other terms and conditons related to PPF is subject to change 

 

Small Savings Deposits Interest Rates from 01-04-2016 to 30-06-2016

Savings Deposit

Rate of interest w.e.f. 01.04.2015 to 31.3.2016

Rate of interest w.e.f. 01.04.2016 to 30.6.2016

Savings Deposit

4

4

1 Year Time Deposit

8.4

7.1

2 Year Time Deposit

8.4

7.2

3 Year Time Deposit

8.4

7.4

5 Year Time Deposit

8.5

7.9

5 Year Recurring Deposit

8.4

7.4

5 Year Senior Citizens Savings Scheme

9.3

8.6

5 year Monthly Income Account Scheme

8.4

7.8

5 Year National Savings Certificate

8.5

8.1

Public Provident Fund Scheme

8.7

8.1

Kisan Vikas Patra

8.7

7.8 (will mature in 110 months)

Sukanya Samriddhi Account Scheme

9.2

8.6

Small savings rates for FY 2015-16 announced

The government today announced key small savings rates for the new fiscal, 2015-16, that starts from 1st April,2015

Public Provident Fund: 8.7 percent (unchanged from FY15)

Kisan Vikas Patra: 8.7 percent (unchanged)

10 year National Savings Certificate: 8.8 percent (unchanged)

5 year NSC: 8.5 percent (unchanged)

5 year Monthly Income Scheme: 8.4 percent (unchanged)

5 year time deposit: 8.5 percent (unchanged)

5 year recurring deposit: 8.4 percent (unchanged)

1-3 year time deposits: 8.4 percent (unchanged)

Savings deposit - 4 percent (unchanged)

The government annoucned changes in two schemes:

5 year Senior Citizen Saving Scheme: increase from 9.2 percent to 9.3 percent

Sukanya Samriddhi Account Scheme: increase from 9.1 percent to 9.2 percent

 

 

Budget 2014  - Public Provident Fund (PPF) Investment limit increased from Rs. 1 lakh to 1.5 lakh

To increase household savings for the common man, the Budget 2014 presented by Finance Minister Arun Jaitley on 10th July 2014 hiked the PPF (Public Provident Fund) to 1.5 lakh per annum from existing Rs. 1 Lakh Per Annum. Investment in PPF qualifies for deduction under section 80C  and Similarly  investment limit under 80C has also been hiked by Rs 50,000 to Rs 1.5 lakh. 

The public provident fund is established by the central government. One can voluntarily open an account with any nationalized bank, selected authorized private bank or post office. The account can be opened in the name of individuals including minor.

The minimum amount is Rs.500 which can be deposited. The rate of interest at present is 8.7% per annum, which is also tax-free. The entire balance can be withdrawn on maturity. Interest received is tax free. The maximum amount which can be deposited every year now is Rs. 1,50,000 in an account. The interest earned on the PPF subscription is compounded and fully exempted from tax . All the balance that accumulates over time is exempt from wealth tax. Moreover, it has low risk  and PPF is available at post offices and banks

The minimum subscription for PPF has been changed to Rs. 100

Central Government has vide Notification No. GSR 225(E)Dated – 13-3-2014  fixed  initial minimum subscription in PPF at Rs. 100 by amending the para 4 of Public Provident Fund Scheme 1968. Earlier there was no minimum fixed amount of deposit for opening of PPF account but the condition was that  amount of initial subscription shall be integral multiples of Rs.5.  The notification Further allows online/ electronic payment in PPF Account if account holder is maintaining account with a Bank or Post office working on Core Banking platform.  Related Notification is as follows :-

Notification N0. GSR 225(E)Dated – 13-3-2014

 

In exercise of the powers conferred by section 3 of the Public Provident Fund Act, 1968 (23 of 1968), the Central Government hereby makes the following rules further to amend thePublic Provident Fund Scheme 1968, namely:—

 

1.    (1) These rules may be called the Public Provident Fund Scheme (Amendment) Rules, 2014.

2.     

(2) They shall come into force on the date of their publication in the Official Gazette.

2. In Public Provident Fund Scheme in paragraph 4, for sub-paragraph (1), (2), (3) and (4) the following shall be substituted, namely:—

“4. (1) Every individual desirous of subscribing to Fund under the Scheme for the first time either on his own or on behalf of a minor of whom he is the guardian shall apply to the Accounts Office in Form A form, together with the amount of initial subscription which shall be minimum of Rs.100.

(2) On receipt of an application under sub-paragraph (1), the Accounts Office shall open an account in the name of the subscriber and issue a passbook to him, wherein all amount of deposits, withdrawals, loans and repayment thereof together with interest due shall be entered over the signature of the Accounts Officer with the date stamp.

Provided that in case of Post Offices working on Core Banking solution platform, astatement of account shall be issued in place of passbook at the discretion of account holder.

(3) The subscriber shall deposit his subscription with the Accounts Office with challan in Form B, or as near thereto as possible and the counterfoil of the challan shall be returned to the depositor by the Accounts Office, duly evidenced by receipt. And in case of deposits made by cheque or draft or pay order, the Accounts Office may issue a paper token to the depositor pending realization of the proceeds.

(4) Every subscription shall be made in cash or crossed cheque or draft or pay order in favour of the Accounts Office at the place at which that office is situated.

Provided that where the Account office is working on Core Banking platform, every subscription shall be made either by cash, cheque, draft, pay orders or any electronic mode in any Account office working on Core Banking Solution Platform.”

 

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