Public Provident Fund ( PPF ) account

Investment in PPF (Public Provident Fund) Account is a favorite tax saving investment option for Indian tax payers in view of the following :

But for the long maturity period of 15 years, PPF is the best available option for tax saving. This can be understood from the following example:

If a person invests say Rs. 1 lac every year for six years under the scheme. Thereafter, he withdraws Rs. 1 lac every year and also invests Rs. 1 lac every year. Therefore, his total investment under the scheme remains at Rs 6 lacs. He will have a tax saving of Rs. 30,900/- every year for 15 years (total Rs. 4,63,500/- ) if he is in upper tax bracket of 30% income Tax, Rs. 20,600/- per year for 15 years (total Rs. 3.09 lacs) if he is in tax bracket of 20% income tax. And, his investments under the scheme (Rs. 6 lacs) will grow to over Rs. 17 lacs on maturity after 15 years. These calculations are based on current PPF interest rate of 8.70% p.a. and current income tax rates.

PPF accounts can be opened at designated branches of State Bank of India and its associate banks, all Head Post Offices and other designated Post Offices and at designated branches of other nationalized banks.

Salient Features of PPF (Public Provident Fund) accounts

FeatureDescription
Who can open?Any adult in his / her name or in minor's name in the capacity of guardian of the minor by submitting application on Form A.
Minimum amountRs. 500/- per annum is required to be deposited.

The accounts in which deposits are not made for any reason are treated as discontinued accounts and such accounts cannot be closed before maturity.

The discontinued account can be activated by payment of the minimum deposit of Rs.500/- with default fee of Rs.50/- for each defaulted year.

Maximum amountRs. 1 lac per annum w.e.f. 1st December 2011. The maximum amount limit is proposed to be enhanced to Rs. 1.50 lacs in budget 2014-15. (Rs. 70,000/- per annum upto 30.11.2011.)

The depositor has flexibility and freedom for depositing any amount in a maximum of 12 installments in a financial year.

Maturity period15 years.

An Account, on the expiry of fifteen years, can be extended for a further period of five years at a time by submitting an application on Form H, or as near thereto as possible.

Interest RateThe interest is paid as per the rates declared by the Government from time to time. The PPF interest Rates have been as under since 1st April 1986:
PeriodInterest RatePeriodInterest Rate
01.04.1986 to 14.01.200012%15.01.2000 to 28.02.200111%
01.03.2001 to 28.02.20029.5%01.03.2002 to 28.02.20039%
01.03.2003 to 30.11.20118%01.12.2011 to 31.03.20128.6%
01.04.2012 to 31.03.20138.8%01.04.2013 onward8.7%

The interest is compounded annually.

The interest for the month is calculated on the minimum balance available in the account from 5th of a month to the last date of the month.

Nomination facilityAvailable.

Application on Form E, or as near thereto as possible, is required to be submitted for Nomination in PPF account.

The nomination can be cancelled or changed or amended by submitting an application on form F, or as near thereto as possible.

TransferabilityA PPF account can be transferred from a branch of State Bank of India or a nationalized bank to Post Office and vice versa and also from a branch of State Bank of India to a designated branch of Nationalized Bank.

A PPF account cannot be transferred from one person to another. Even in the case of death of a depositor, the nominee cannot continue the account.

Loan facilityA depositor can avail of loan facility any time after expiry of one year from the end of the year in which the initial subscription was made but before expiry of five years from the end of the year in which the initial subscription was made i.e. the loan facility is available from third to sixth financial year of opening the account.

Application in prescribed form ( Form D, or as near thereto as possible ) is to be made for loan along with the pass book of the account.

The loan can be taken up to 25% of the amount in the account at the end of the second year immediately preceding the year in which the loan is applied for.

In case, the loan is sought from minor's Account, the guardian has to make a declaration that the money is required for the use/benefit of the minor.

The loan is repayable in lump sum or convenient installments. Where loan is repaid within 36 months, interest is charged at 1% (2% w.e.f. 1st December 2011) and if it is not repaid within 36 months, the interest at the rate of 6% is charged on the outstanding balance. The interest is to be paid in not more than two installments after the loan amount is fully repaid.

Once the first loan is repaid, second loan can be obtained on same terms.

Withdrawal facilityA depositor can make partial withdrawals, once every year from his PPF account after expiry of five years from the end of Financial Year in which the initial deposit was made i.e. withdrawal from PPF account is available from seventh year.

The amount of withdrawal is restricted to 50% of the credit balance at the end of the fourth year immediately preceding the year of withdrawal or the year immediately preceding the year of withdrawal, whichever is lower.

Application in prescribed form ( Form C, or as near thereto as possible ) is to be made for withdrawal along with the pass book of the account.

In case, the withdrawal is sought from minor's Account, the guardian has to make a declaration that the money is required for the use/benefit of the minor.

In case of accounts extended beyond Maturity period partial withdrawals are allowed once in a year with the condition that the amount of withdrawal during a five year block period should not exceed 60% of the balance in the account at the commencement of the block period.

Premature EncashmentPremature closure of a PPF Account is not permissible except in the case of death of the depositor. In case of death of the nominees / legal heirs have to submit application on Form G, or as near thereto as possible, for premature withdrawal.
Closure on MaturityAny time after the expiry of 15 years from the end of the year in which the initial subscription was made by him, a subscriber may, if he so desires, apply in Form C, or as near thereto as possible, together with his pass book for the withdrawal of the entire balance standing to his credit. The account holder will be allowed of the entire balance (together with interest up to the last day of the month preceding the month in which the application for withdrawals made) after making adjustments, if any, in respect of any interest due from the subscriber on loans taken by him and close his account.
Continuation after MaturityOn the expiry of 15 years from the end of the year in which the initial subscription was made but before then expiry of one year thereafter, an account holder may exercise an option Form H, or as near thereto as possible, that he would continue to subscribe for a further block period of 5 years according to the limits of subscription.

In the event of an account holder opting to subscribe for the aforesaid block period he shall be eligible to make partial withdrawals not exceeding one every year by applying on Form C, or as near thereto as possible, subject to the condition that the total of the withdrawals, during the 5 year block period, shall not exceed 60 percent of the balance at his credit at the commencement of the said period.

If an account holder fails to submit application for extension of account on form H within one year of the maturity of the account, the account will get extended by default and the balance in the account shall continue to earn interest but the account holder will not be able to make investments / deposits in the account. He will only be able to make withdrawals from the account.

Tax benefitsAvailable under Section 80C
Interest TaxabilityInterest income is totally tax free.
Other featuresThe benefits of exemption of interest from Income Tax is not available on deposits made in a PPF account after expiry of fifteen years without exercising option in writing for continuance of the account within one year.

PPF accounts can be opened and operated through an authorized agent appointed by the National Savings Organization.

Only local cheques are accepted for deposit and the date of presentation of local cheque and demand draft is treated as date of deposit in the Account.

Balance in PPF account cannot be attached under court decree.

Entire deposit in a PPF account is exempt from the Wealth Tax.

The deposit in a minor's account is clubbed with the deposit of the account of the guardian for the limit of Rs.70,000/- (1,00,000/- w.e.f. 1st December 2011).

On death of the account holder his nominee(s)/legal heir(s) cannot continue the account. The account has to be closed in such case.

Deposits in excess of Rs. 1,00,000/- w.e.f. 1st December 2011 (Rs.70,000/- earlier) in a financial year in a PPF account are refunded without interest and the excess amount is not considered for income tax rebate.

Agency CommissionDiscontinued w.e.f. 1st December 2011.