Public Provident Fund(PPF)

PPF is an investment option for an individual. It is considered as the safest mode of investment. The investment is covered under "EEE" Category

Exempt - Investment in PPF provides 80C benefit upto INR 1.5 lakh in a year.

Exempt- Interest earned is exempt from Income Tax

Exempt- Amount received on maturity is also exempt from Income Tax.

Let us cover the relevant provision of PPF scheme, 2019

1. Account Opening in PPF

Resident Individual may open a PPF account

• For Himself

• For minor child or Person of Unsound Mind (Individual should be a legal guardian)

Notes:

• Only one account can be opened for each minor child by any guardian.

• Joint Account shall not be opened

• NRI's are NOT allowed to open a PPF account

2. Investment

• A minimum of INR 500 should be deposited every year

• A maximum of INR 1.5 lakh may be deposited in a Financial Year.

Notes:

• Amount should be deposited in multiple of 50

• The limit of 1.5 lakhs is in respect of account opened for himself as well as minor child/person of unsound mind.

3. Tax benefit u/s 80C

• A deduction of up to 1.5 lakhs is available u/s 80C of IT Act, 1961 in respect of investment made in PPF for himself, spouse, any child of Individual.

4. Discontinuation of Account

• The account shall be discontinued if minimum deposit of INR 500 is not deposited in any Financial Year

• The account may be renewed for INR 50 along with the arrear of minimum deposit of INR 500 for each year of default.

• The limit of INR 1.5 lakhs includes arrear payment of past years but excludes arrear fee of INR 50

Consequences of Discontinued account

• New account cannot be opened unless discontinued account is closed after maturity.

• Loan cannot be granted

• Partial Withdrawal is not allowed

5. Interest

• Interest shall be credited at the end of each Year. The Current Rate is 7.1% as on 13th July, 2021. Kindly check the rate at each quarter.

• Interest is calculated on lowest balance of below period:

Close of 5th day of month to End of month

• Hence, it is advisable to deposit fund during 1st day of month to 5th day of month.

5. Withdrawal

• Full Withdrawal on Maturity(Form 3): The total outstanding fund along with interest may be withdrawn after expiry of 15 years from the end of the year in which account was opened.

• Partial Withdrawal (Form 2): Partial withdrawal is allowed on expiry of 5 years from end of the year in which account was opened.

• Amount of Withdrawal: 50% of lower of following balances:

a) balance at the end of 4th year

b) Preceding year balance

• In case of minor, the withdrawal shall be only for use of minor and the below certificate should be submitted

"Certified that the amount sought to be withdrawn is required for the use and welfare of Shri/Smt./Master/ Kumari……………………………. who is a minor/ a person of unsound mind/ a person incapable of operating his account due to physical infirmity and is alive on this……the day of…………..(month), ……….(year).".

Notes:

• Partial withdrawal is allowed once in a Year

• Any loan taken should be repaid in full along with interest, before any partial withdrawal

6. Grant of Loan: Loan may be granted against the invested fund in PPF

• Eligible Period of Loan: Loan shall be granted after the expiry of One Year from the end of the year in which account was opened but before the expiry of 5 years from the end of the year in which account was opened.

• Example: Account opened on 1st July, 2021. Loan can be availed after 31st Mar, 2023 but before 31st Mar, 2027

• Limit on loan: 25% of balance at the end of 2nd Year immediately preceding the year in which loan is availed.

• Loan shall be taken only once in a Year

• Fresh loan shall not be available unless old loan is repaid in full along with Interest.

• Account opened for Minor Child/Unsound Mind: Loan may be obtained for the benefit of minor child or person of Unsound Mind and a certificate should be submitted as below:

"Certified that the amount sought to be withdrawn is required for the use and welfare of Shri/Smt./Master/ Kumari……………………………. who is a minor/ a person of unsound mind/ a person incapable of operating his account due to physical infirmity and is alive on this……the day of…………..(month), ……….(year).".

7. Repayment of Principal and Interest

• Principal amount shall be repaid in 36 months (3 years) beginning from 1st day of month following the month in which loan is sanctioned. Repayment may be made in lumpsum or Installment

• Interest Repayment

a) If Principal is fully paid: Interest @ 1% and shall be paid in 2 monthly installment maximum.

b) If Principal is not paid or Partly paid: Interest @6% instead of 1%

• Period of Interest: 1st day on Month after the month in which loan is drawn AND up to Last day of month in which last installment was repaid.

• Interest on becoming due shall be debited to Holder's Account at the end of each Year.

• Death of the account holder: Nominee or legal heir shall be liable to pay interest. Such amount of due interest shall be adjusted at the time of final closure of the account.

8. Settlement in case of death of the Account Holder

• If nomination exist: All amount including interest shall be payable to nominee

• If Nomination doesn't exist: Amount payable to legal heir

Nomination in Favour of Minor: Amount shall be payable as follows:

• Guardian of Minor's Property appointed by Court - To the appointed Guardian.

• No Guardian Appointed - To Either Parent of Minor

• No Parent alive - To any other Guardian

Notes:

• Nominee or Legal Heir cannot continue the Account after the death of account holder.

• Interest will accrue till the end of the month preceding the month in which the eligible balance is paid to the nominee or the legal heir.

9. Protection against Attachment

• PPF fund shall not be liable to attachment under any order or decree of any court in respect of any debt or liability incurred by the account holder.

10. Continuation of Account after 15 years

• An account holder may continue to maintain their account:

a) With Deposit (Form 4) or

b) Without Deposit

• Interest will continue to accrue under both the options.

• The option to continue "with Deposit" should be taken within one year from the date of maturity period of 15 years.

• In case the option "with deposit" is chosen, the funds will be blocked for further 5 years.

• Partial withdrawal shall be allowed once in a year subject to maximum amount of 60% of balance outstanding at the commencement of block period.

• Withdrawal may be made in lumpsum or yearly installment

• Option once exercised, shall not be allowed to change.

11. Premature Closure of Account

• The premature closure is allowed for both Individual and minor/unsound person account only after the expiry of 5 years from end of the year in which account was opened for below reasons only:

a) Treatment of life threatening diseases of Individual/Spouse/Dependent

Children/Parents.

b) Higher education of Individual/Dependent Children

c) Change in Residency status of Individual

• Documentary evidence should be furnished in each of above cases such as medical reports, fee bills of educational institution, passport or income tax return.

• In case of premature closure, the Interest rate shall be reduced by 1% from the date of opening of account or date of extension of account.