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PPF Public Provident Fund is the long-term investment plan targeted towards the self-employed class of India. The Public Provident Fund is a savings-cum-tax-saving instrument in India, introduced by the National Savings Institute of the Ministry of Finance in 1968. The aim of the scheme is to mobilize small savings by offering an investment with reasonable returns combined with income tax benefits. The scheme is fully guaranteed by the Central Government. Balance in PPF account is not subject to attachment under any order or decree of court. However, Income Tax & other Government authorities can attach the account for recovering tax dues.
Eligibility for Opening PPF Account
- Individuals who are residents of India can open an account under the scheme.
- Only one PPF account can be maintained by an Individual, except an account that is opened on behalf of a minor. Thus, PPF account can also be opened by either parent under the name of a minor. However, each person is eligible for only one account under his/her name.
- Mother and Father both cannot open Public Provident Fund (PPF) accounts on behalf of the same minor. Thus, in case a couple has two children, they can maximum open four accounts i.e. two in their own accounts and two in the name of their children under guardianship of either of the parent.
- Non-resident Indians (NRIs) are NOT eligible to open an account. However, a resident who becomes an NRI during the tenure prescribed under Public Provident Fund Scheme, may continue to subscribe to the fund until its maturity on a non-repatriation basis. (Funds can be transferred via CASH or NRO Account.
- Funds can be transferred via Internet banking). However, such an account will not be eligible for extension of five years at the time of maturity.
How to Open PPF Account?
Visit to your nearest State Bank of India branch, or a branch of any of State Bank’s subsidiaries. You can also open an account in select nationalized banks, and the post office. Fill in the form, attach a photograph, state your PAN Number, and you’re done. Once your formalities are completed, you will receive a pass book which will record all your PPF transactions.
At any point in your life, you are allowed to have only 1 PPF account in your name. You can also have an account in the name of a minor child of whom you are the parent / guardian. However, that will be the child’s account, you will simply be the guardian. You can never have a joint account
If at any time it is seen that you have more than 1 account in your own name, the second account will be deactivated, and only your principal will be returned to you.
If you have a General Provident Fund account, or an Employees Provident Fund account, you can still have a PPF account – there is no restriction.
Documents Required to Open PPF Account
For customers who have a relationship with ICICI Bank that is < 5 years
- Form A
- Passport size photograph
- Copy of PAN card
- Residence proof – Passport/ Electricity Bill
Interest Rates For PPF Account:
The Ministry of Finance, Government of India announces the rate of interest for PPF account every quarter. The current interest rate effective from 1 July 2017 is 7.8% Per Annum'(compounded annually). Interest will be paid on 31 March every year. Interest is calculated on the lowest balance between the close of the fifth day and the last day of every month.
Key Features Of PPF
- The Public Provident Fund Scheme is a statutory scheme of the Central Government of India
- The Scheme is for 15 years.
- The minimum deposit is 500/- and maximum is Rs. 1,50,000/- in a financial year.
- One deposit with a minimum amount of Rs.500/- is mandatory in each financial year.
- The deposit can be in lumpsum or in convenient installments, not more than 12 Installments in a year or two installments in a month subject to total deposit of Rs.1,50,000/- per FY.
- It is not mandatory to make a deposit in every month of the year. The amount of deposit can be varied to suit the convenience of the account holders.
- The account in which deposits are not made for any reasons is treated as discontinued account and such account cannot be closed before maturity.
- The discontinued account can be activated by payment of minimum deposit of Rs.500/- with default fee of Rs.50/- for each defaulted year
- The deposits shall be in multiple of Rs.100/- subject to minimum amount of Rs.500/-.
- The deposit in a minor account is clubbed with the deposit of the account of the Guardian for the limit of Rs.1,50,000/-.
- No age is prescribed for opening a PPF account.
Loan Facility of PPF:
A PPF subscriber can avail loan between the third and sixth financial year of opening the account. For example, if the account was opened in the 2011-12, a subscriber can take a loan between 2014-15 and 2017-18. PPF accounts follow an April-March year cycle. The amount is restricted to 25 per cent of the balance at the end of the second year preceding the year in which the loan is applied for. For example, if the loan was applied in 2015-16, 25 per cent of the account balance at the end of 2013-14 can be taken as loan.
However, no loan can be taken from the seventh year of opening the PPF account, as it qualifies for partial withdrawal. The loan (principal) is repayable either in lump sum or in installments within 36 months. The interest portion of the loan has to be repaid by two monthly installments after the principal is paid off. Interest is charged at 2 per cent more than a subscriber receives on the PPF. Meanwhile, the balance amount in the PPF account accumulates interest. If the loan is not repaid within 36 months, interest at 6 per cent more than what subscribers receive on their deposits is charged.
Partial Withdrawals From PPF:
The PPF Scheme has very strict and specific rules to withdraw an amount from the Account. Normally, one can withdraw the full amount only after the maturity period of 15 years. But in any case, of emergency, you can withdraw some amount from the 7th financial year onwards to till 15th year. So, for withdrawing, there are some PPF Withdrawal rules which we need to follow. Mainly PPF is a long-term savings Account and also good end tax-free return investment. The PPF Account’s maturity period is 15 years. In case if you want to continue your PPF account after 15 years then you can extend the maturity period with a block of 5 years
Premature Closure of PPF Account:
The premature withdrawal, however, comes with a penalty-you will get 1% less interest as applicable from time to time. Earlier you were not allowed to prematurely close your PPF account. You had to complete 15 years to close it. So, even if you left the account inactive, you could only get the money after 15 years. Earlier you could only do partial withdrawal from the seventh financial year onwards. For partial withdrawals, earlier the rule was capped at 50% of the total balance at the end of the fourth year, counting back from the year of withdrawal or 50% of the total balance at the end of the year before the year of withdrawal, whichever is lower.
Inactivation and Reactivation of PPF Accounts
If a PPF account holder stop depositing the minimum amount of Rs. 500 for a year, the account will be inactive. To reactivate the account, the account holder need to pay Rs. 500 for every year contribution and Rs. 50 as penalty. For example, if you are failed to contribute two years you need to pay Rs.1000 as two years contribution and Rs.100 as a penalty for two years.
On Death of PPF account holder
Nomination facility is available for PPF account. In the event of the death of the PPF account holder, the balance amount in the PPF account will be paid even before the completion of 15 years, to the nominee or legal heir of the deceased person. The nominee of legal heir is not allowed to continue the PPF account by making fresh subscriptions to it.
Extension of PPF Account for 15 Years
(1) Closing of PPF account after the maturity or completion of 15 years – This option is known to all. We open an account, contribute till 15 years completion and finally close and withdraw the whole amount with interest. Even banks and post office share this option alone when you enquire about PPF feature. Therefore, I may say this as a universal option to the majority of PPF investors.
(2) Extend PPF account without further contribution – This is the default option. Let us say your account matured on 1st April, 2016 and you neither closed the account nor applied to extend the account for a block of 5 years WITH CONTRIBUTION, then this option will be automatically activated. Do remember that the application to extend the account with a contribution for a block of 5 years must be submitted within one year from the date of maturity. Otherwise, this option will be selected automatically.
(3) Extension 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.