Public Provident Fund (PPF Account) | A popular saving scheme

Public Provident Fund
Public Provident Fund (PPF)

What is Public Provident Fund (PPF)?

Public Provident Fund is a popular and one of the best long term investment schemes with salaried as well as self-employed class of individuals in India. This scheme was introduced by the Ministry of Finance in the year 1968. It is offers risk free returns with attractive interest rate and interest earned on deposits are exempted from Tax. The deposits made in PPF accounts can be claimed as tax deductions. This makes the PPF Scheme one of the most tax efficient instruments.

How to open a PPF account?

One can open a PPF account with either selected Post Offices or with any nationalized bank like the State Bank of India or Punjab National Bank, etc. These days, even certain private banks like ICICI, HDFC and Axis Bank among others are authorized to provide this facility. PPF account in most of the banks can now be operated online. You need to submit the duly filled application form along with the required documents i.e. the KYC documents like identity proof, address proof, and signature proof. Post submitting these documents you can deposit a prescribed amount towards the opening of the account.

Eligibility for opening a PPF account

1. Only an Indian resident, 18 years or above can open a PPF account.

2. A person can open only one PPF account.

3. NRIs who had opened the PPF account while they were resident Indians can operate the account until 15 years with no option for extension.

4. Minors can open a PPF account based on a legal age proof under the guardianship of parent.

5. HUFs cannot open PPF account.

Documents required to open a PPF Account

1. Account opening form (PPF Account opening form available at the bank branch or the Indian Post portal).

2. Two current passport size photographs.

3. ID proof that includes any of the following:

  • PAN card
  • Voter ID card
  • Passport
  • Driving license
  • Aadhaar Proof

4. Address proof, which can be any of the following:

  • Telephone bill
  • Electricity bill
  • Ration card
  • Aadhaar Card

5. Pay-in-slip at the bank branch to transfer the amount to your PPF account or a signed cheque or DD in favor of your PPF account.

6. For a minor, a birth certificate may also be required as an age proof

Please note that all documents have to be self-attested and originals have to be taken while opening the accountKey Features of PPF Account

Also one can apply online applications, there are separate procedures for all the banks but the basic documentation and submission of application will remain the same.

a) Tenure: The PPF has a minimum tenure of 15 years, which can be extended in blocks of 5 years as per your wish.

b) Investment Limits: PPF allows a minimum investment of Rs 500 and a maximum of Rs 1.5 lakh for each financial year. Investments can be made in lump sum or in a maximum of 12 installments.

c) Opening Balance: The account can be opened with just Rs 100. Annual investments above Rs 1.5 lakh will not earn interest and will not be eligible for tax saving.

d) Deposit Frequency: Deposits into a PPF account has to be made at least once every year for 15 years.

e) Mode of deposit: The deposit into a PPF account can be made either by way of cash, cheque, Demand Draft or through an online fund transfer.

f) Nomination: A PPF account holder can designate a nominee for his account either at the time of opening the account or subsequently.

g) Joint accounts: A PPF account can be held only in the name of one individual. Opening an account in joint names is not allowed.

h) Risk factor:  Since PPF is backed by the Indian government, it offers guaranteed, risk­-free returns as well as complete capital protection. The element of risk involved in holding a PPF account is minimal.

i) Who can invest in PPF: Any Indian citizen can invest in PPF. One citizen can have only one PPF account unless the second account is in the name of a minor. NRIs and HUFs are not eligible to open a PPF account.

j) Loan against PPF: You can take a loan against your PPF account between the 3rd and 5th year. The loan amount can be a maximum of 25% of the 2nd year immediately preceding the loan application year. A second loan can be taken before the 6th year if the first loan is repaid fully.

Benefits of opening a PPF account

a) Risk-free Interest rate: An attractive interest rate of 8% with a scheme backed by the Central Government

b) Compounded interest rate: The interest rate on PPF is compounded annually. Interest is paid on the 31st of March every year.

c) Tax Deduction: Deductions under section 80C at Rs 1.5 lacs on investment in the PPF account.

d) Time Duration: Good long-term investment of 15 years

e) Loans against PPF balance: Loans can be availed between the 3rd to the 6th financial year

f) Low Investment token: Deposit Amount ranges from a minimum of Rs.500 to a maximum Rs.1,50,000 in one financial year

g) Extension of a PPF account: Account can be extended in a block period of 5 years after maturity

h) Withdrawal Facility: Partial withdrawal facility can be availed from the 7th financial year onwards.

Interest Rates for PPF Account

The Government announces the rate of interest for PPF account every quarter. The current rate of interest effective from 1/10/2018 on PPF account is fixed at 8%. The interest is compounded annually and is credited in the account at the end of financial year. Interest earned on amounts held in PPF accounts is tax-free.

The following table represents the interest rate set by the Central Government in the recent past.

Financial YearTime Period Interest rate (Per Annum)
2021 – 22April 2021 – June 20227.1%
2020 – 21Apr 2020 – March 20217.9%
2019 – 20July 2019 – March 20207.9%
2018 – 198.0%
2017 – 188.0%
2016 – 17 8.0%
2015 – 16 8.7%
2014 – 15 8.7%
2013 – 14 8.7%
2012 – 13 8.8%
2011 – 12Dec 2011 – Mar 20128.6%
2011 – 12 8.0%
2010 – 11 8.0%
2009 – 10 8.0%
2008 – 09 8.0%
2007 – 08 8.0%
2006 – 07 8.0%
2005 – 06 8.0%

PPF account for a minor

A PPF account can be opened by a parent on behalf of his/her child. Both the parents cannot open a separate PPF account for the same child. An individual can hence open one PPF account on behalf of each minor child of whom he/she is the guardian.

Grandparents are not permitted to open a PPF for their grandchildren when the parents of the minor are still alive.

Birth Certificate is also a document required for minors as an age proof.

List of all forms in a PPF account

List of Forms

Nature of the Form

Form A

For opening a Public Provident Fund account

Form B

For making deposits in the PPF account and repaying the loans against the PPF account

Form C

For partial withdrawals from the PPF account

Form D

To apply for a loan against the PPF account

Form E

Adding a nominee for the PPF account

Form F

Changing the nomination for the PPF account

Form G

For claiming of funds in  a PPF account by a nominee or the legal heir

Form H

For extending the maturity of the PPF account (1 or 5 years)

Pre-Mature closure of PPF account

Premature closure of PPF account is allowed only after completion of 5 years for the purpose of medical treatment of family members, and for higher education of only the PPF account holder. The premature closure comes with an interest rate penalty of 1%.

Transfer of a PPF account

The PPF account can be transferred to any other branch or any other bank or Post Office on the request of the PPF account holder. This service is free of charge.

Step 1 – Approach the bank or post office branch where the PPF account is held and ask for the necessary form to be filled.

Step 2 – The existing bank will then forward the certified copy of the account, nomination form, the account opening application, and specimen signature along with the cheque/dd for the outstanding amount in the PPF account to the new bank at the branch specified by the customer.

Step 3 – Once the new bank branch or post office receives these documents, they will inform and will ask you to submit a new PPF account opening form along with the old PPF passbook. A new nominee can be submitted as well.

Step 4 – Check in a couple of weeks that the transferred PPF account now shows up under the PPF account tab/link in the log-in of your internet banking id, if not then inquire at the local bank branch or the local post office branch.

Inactivation and Reactivation of PPF account

Money has to be deposited or invested each year to keep a PPF account active. The minimum requirement of Rs.500 should be met each financial year, if not then the PPF account from that financial year is deemed inactive.

Loan facility cannot be availed when the PPF account is inactive.

To reactivate the PPF account an account holder has to pay a penalty of Rs.50 per year of inactivation and the minimum amount cumulative for each inactive year as well.

For example, if the account has been inactive from year 4 to year 7 and now if we want to reactivate the account in year 8, then a penalty of Rs 50 for 4 years has to be paid ie Rs 200 (Rs 50*4 years).

Deposit amount – Rs 500 * 4 years = Rs 2000 needs to be deposited as well along with the penalty of Rs 200.

Tax implications on a PPF account

PPF falls under EEE (Exempt, Exempt, Exempt) tax basket. Investments into the PPF account are eligible for tax benefits under Section 80C of the Income Tax Act, for up to a maximum of 1.5 lacs per annum. The total amount received upon maturity and the interest earned are both exempted from income tax. Contributions to the PPF accounts of the spouse and children are also eligible for tax deduction.

PPF withdrawal

As a rule, one can close a PPF account only upon maturity i.e. after the completion of 15 years. Upon completion of 15 years, the entire amount standing to the credit of an account holder in the PPF account along with the accrued interest can be withdrawn freely and the account can be closed.

However, if account holders are in need of funds, and wish to withdraw before 15 years, the scheme permits partial withdrawals from year 7 i.e. on completing 6 years.

An account holder can withdraw prematurely, up to a maximum of 50% of the amount that is in the account at the end of the 4th year (preceding the year in which the amount is withdrawn or at the end of the preceding year, whichever is lower). Further, withdrawals can be made only once in a financial year.

Procedure for withdrawal from PPF

In case you wish to partially or completely withdraw the balance lying in your PPF account, you can do so by submitting an application for withdrawal in Form C with the concerned branch of the bank where your PPF account lies. This form is available for download here.

This form has 3 sections:

1. Declaration section where you must provide your PPF account number and the amount of money you propose to withdraw. Along with that, you also need to mention how many years have actually passed since the account was first opened.

2. Office use section which comprises of details like:

  • Date when the PPF account was opened.
  • Total balance standing in the PPF account.
  • Date on which the previously requested withdrawal was allowed.
  • Total withdrawal amount available in the account.
  • The amount of money sanctioned for withdrawal.
  • Date and signature of the person in charge – usually the service manager.

3.  Bank details section which asks for the details of the bank where the money is to be credited directly or the bank in whose favor the cheque or the demand draft is to be issued.

It is also mandatory to enclose a copy of the PPF passbook along with this application.

Extention of PPF Account after 15 years

The PPF accounts mature at the end of the 15th financial year, account holders have an option to extend the tenure. The tenure can be extended for one or more blocks of 5 years each on written request within 1 year from the date of maturity. There can be two types of extention:-

a) Extention without contribution – The balance in the account will continue to earn interest at the prevailing rates till the account is closed. Also, in this case, any amount can be withdrawan without any restrictions once every financial year.

b) Extention with contribution – The account holder can make deposits as earlier. In this case, withdrawal is restricted to a maximum of 60% of the balance at the beginning of each extended period is allowed.

Also Read: Atal Pension Yojana – APY Scheme Eligibility & Benefits

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