The Public Provident Fund‘s (PPF) tax-free returns and the sovereign guarantee of the principal and the interest earned has made it a favourite among savers. The principal invested in the PPF qualifies for deduction under section 80C of the Income-tax Act, 1961 and the interest earned is tax-exempt as well under Section 10.
Here is a look at important rules you should know about the PPF.
Who can open PPF account
The PPF is a 15-year scheme, which can be extended indefinitely in blocks of 5 years. It can be opened in a designated post office or a bank branch. It can also be opened online with banks. One is allowed to transfer a PPF account from a post office to a bank or vice versa. A person of any age can open a PPF account; even those with an EPF account can open one.
One can deposit money into a PPF account a maximum of 12 times in a year. Do remember to deposit before the 5th of the month to get interest for the full month, as the interest is allowed on the lowest balance at the credit of an account from the close of the 5th day and the end of the month. You can also deposit a lump sum amount right at the beginning of the financial year. There are provisions to take loans and make partial withdrawals from the scheme as well.
PPF interest rate
PPF is a debt-oriented asset class, i.e., one’s investment is not exposed to equities and hence, returns are not linked to the stock market performance. The interest rate on PPF returns are set by the government every quarter based on the yield (return) of government securities. In 1968-69, PPF offered a 4 per cent per annum interest while from 1986-2000 it offered 12 per cent.At present, for the December 2023 quarter for the financial year 2023-24, the interest rate is 7.1%.
PPF deposit limit
While the minimum annual amount required to keep the account active is Rs 500, the maximum amount that can be deposited in a financial year is Rs 1.5 lakh. One can open a PPF account in one’s own name or on behalf of a minor of whom he is the guardian. This is the combined limit of self and minor account.If contributions are in excess of Rs 1.5 lakh in a year, the excess deposits will be treated as irregular and will neither carry any interest nor will this excess amount be eligible for tax benefit under Section 80C. This excess amount will be refunded to the subscriber without any interest.
PPF in the name of minor
A PPF account on behalf of a minor can be opened by either father or mother. Both the parents cannot open a separate account for the same minor. An individual may, therefore, open one PPF account on behalf of each minor of whom he is the guardian.
PPF rules do not allow grandparents to open PPF account for minors when the parents of the minor are alive. They can open the account only if they are appointed as legal guardian after the death of the parents.
Number of accounts
An individual can open only one account in his name either in a post office or a bank and he has to declare this in the application form for opening the account. Persons having a PPF account in the bank cannot open another account in the post office and vice-versa.
If two accounts are opened by the subscriber in his name by mistake, the second account will be treated as irregular account and will not carry any interest unless the two accounts are amalgamated. For this, one has to write to the Ministry of Finance (Department of Economic Affairs) and get its approval.
Premature closure of PPF account
Unlike in the past, when only loans and partial withdrawals were allowed, now even premature closure of the PPF account is possible. It will, however, be allowed only after the account has completed five financial years and on specific grounds such as treatment of serious ailment or life threatening disease of the account holder, spouse or dependent children or parents, on the production of supporting documents from the competent medical authority.
If the amount is required for higher education of the account holder or the minor account holder then, on production of documents and fee bills in confirmation of admission in a recognised institute of higher education in India or abroad, premature closure of the PPF account is allowed.
The application form of PPF (Form-A) does not carry the provisions for nominations as it is to be filled in a separate form. Make sure to fill the nomination form (Form-E) at the time of opening a PPF account to avoid any legal hassles for the nominee later on.
Who should invest in PPF
PPF suits those investors who do not want volatility in returns akin to equity asset class. However, for long-term goals and especially when the inflation-adjusted target amount is high, it is better to take equity exposure, preferably through equity mutual funds, including ELSS tax saving funds.