Public Provident Fund or PPF is one of the most preferred means of Investment as well as Tax Saving in India. As we are entering into the New Year, people will be wondering where to invest their hard earned money to reduce their tax liabilities. As PPF is one of the excellent choices, we have already covered it in detail in some of the earlier articles in our blog. The purpose of this article is to try to answer all possible questions that may arise in your mind about PPF. If you can’t find an answer to any query you may have about PPF, please feel free to leave a comment and I will be more than happy to clarify it :-)
Before we Begin: Old articles in our blog that cover PPF
1. Public Provident Fund (PPF) De-Mystified
2. Best Tax Saving Options Available for Investment
3. Saving Income Tax through Investments
4. Life Stage based Tax Saving Portfolio
The Questions and their Answers!!!
Q1. Who can open a Public Provident Fund PPF account?
Any Indian who earns an Income in India can open a PPF account, either on his/her own behalf or on behalf of a minor. Even NRI's who wish to avail tax rebate on their income in India are also eligible to open a PPF account. Payments, however, will have to be made from their NRO account on a non-repatriable basis.
Q2. Can an NRI who does not earn an Income in India Open a new PPF Account?
No. They cannot. However, if the NRI had opened a PPF Account before he/she left the country, they can keep the account open and even make contributions towards it.
Q3. Can a Hindu Undivided Family (HUF) open a PPF account?
No. HUFs are no longer allowed to open any PPF account.
Q4. How many PPF Accounts can one Individual have?
You can have only one PPF account in your name. If, at any point, it is detected that you have two accounts, the second account you have opened will be closed, and you will be refunded only the principal amount, not the interest. Plus, don’t forget the penalties and fines for having kept two accounts.
Q5. Can I open a PPF Account for a minor?
Yes, but there are a few limitations.
* The person opening the account must be the legal guardian for the Minor
* Either the father or the mother can open a PPF account on behalf of their minor child, but both cannot open an account for the same child
Q6. Where can you open an Public Provident Fund - PPF account?
You can open a PPF Account at any of the following:
a. Any branch of State Bank of India
b. Any branch of SBI's associated banks like State Bank of Mysore, Hyderabad etc.
c. Your nearest Post Office
These days, some more Nationalized and even Private Banks have started offering PPF Accounts to their customers. Remember, banks don’t get any money or fees to handle these PPF accounts and more importantly the money has to be credited to RBI the very same day. So, they may be slow or reluctant to help you with the PPF account. So, some people feel that the Post Office is much more accessible in terms of PPF Account opening as well as for subsequent transactions.
Note: No matter where you open an account, you will be given a passbook in which all subscriptions, interest accrued, withdrawals, loans and so on, are recorded. Remember to collect it and keep it safely.
Q7. How long can/must you keep the Public Provident Fund account active?
The normal term of a PPF account is 15 years. However, the effective period works out to 16 years because you are allowed to make your last contribution in the 16th financial year. Even if you make a contribution on the last day, you still get the tax rebate, although you won’t earn any interest on the amount.
Q8. Can I continue the PPF account after the 15 year lock-in period?
The PPF account is valid for 15 years. The entire balance can be withdrawn on maturity, that is, after 15 years from the close of the financial year in which you opened the account. So, if you opened an account now in FY 2012-13, your PPF matures on April 1, 2028. (15 years from March 31st 2013 which is the last day of the current financial year 2012-13)
You have an option of extending your accounts after the 15 year tenure with or without further subscription, for any period in a block of 5 years. The balance in the account will continue to earn interest at the prevailing rates till the account is closed. In case the account is extended without contribution, any amount can be withdrawn without restrictions. However, only one withdrawal is allowed per year. If you continue the account after 15 years, with continued deposit, withdrawal up to 60 per cent of the balance at the beginning of each extended period (block of five years) is permitted.
Q9. What are the Minimum and Maximum deposit limits?
A Minimum deposit of Rs. 500 must be made during every financial year. The Maximum amount you can deposit every year as of now is Rs. 1 lakh. (It was 70,000 till last year - 2011)
Q10. How many deposits can I make in one year?
Deposits could be in either one lump sum, or in regular installments. You could vary the amount and the number of installments, as per your convenience, but you cannot exceed 12 installments in one financial year.
Note: The amount that is being deposited should be in multiples of Rs. 10/- You cannot deposit Rs. 501/-
Q11. What happens if I fail to make the Rs. 500 minimum payment?
If you Fail to deposit the minimum amount (Rs. 500/-) your account would be discontinued.
Q12. When my PPF Account is discontinued, will it continue to accrue Interest?
Yes, the amount in your account will continue to earn/accrue interest.
Q13. Can I revive my discontinued PPF Account?
Yes, you can revive your PPF account by paying a fee of Rs. 50/- for each year that you defaulted, along with subscription arrears of Rs. 500/- for each such year.
Q14. Can I open a new PPF account after my old account got discontinued?
No. You cannot. You will not be debarred from opening a new one if your old account got discontinued.
Q15. Can I make withdrawals from my PPF account?
It depends on the number of years the PPF Account has been active.
* The entire credit balance in your PPF account is yours to withdraw when it matures at the end of the 15 year period.
* The first withdrawal can be made from the Seventh year
* You can make only one withdrawal ever year
* You can withdraw up to 50 per cent of the balance at the end of the fourth year or the year immediately preceding the withdrawal (whichever is lower)
Q16. If I open a PPF account for my Minor son and deposit 1 lakh in it for this year and then deposit 1 lakh in my PPF account, can I get 2 lakhs tax benefits under Sec 80C?
No. The upper limit under Section 80C of the Indian Tax Laws is 1 lakh and it includes contributions made towards all saving instruments that fall under this category against both your as well as your dependents names. The upper limit is on a per individual basis and not on a per account basis which means if I have a PPF Acc and have one on my Sons name, A combined of 1 lakh only can be deposited both accounts put together.
Q17. Can you get loans form your PPF account?
Yes. You can get loans from your PPF Account. But, there are a few restrictions:
* There can only be one loan at any point in time.
* The existing loan has to be repaid in full before you can apply for a new loan
* Loans can be taken after completing 3 full years of keeping the PPF account active
* Loan amount is limited to 25% of the corpus that was present in the PPF Account at the end of two years preceding to the current date (when the Loan is being applied).
* Interest is charged at the rate of 1% if prepaid within 36 months and at 6% on the outstanding loan after 36 months.
* The repayment may be made either in lump-sum or in Installments.
Q18. Is the amount that I receive at maturity taxable?
No. The amount you receive at the end of the 15 year period is fully Tax Free. Even the Interest you earned in your PPF Account is not taxable.
Q19. Who decides the Rate of Interest earned in the PPF Account?
The Government of India decides the Rate of Interest.
Q20. How is the Interest calculated on my PPF account balance?
The Interest is calculated on a monthly basis based on the lowest balance in an account between the close of the 5th day and the end of the month. So, if you had Rs. 10,000/- on the 4th of the month and deposited another 10,000/- on the 6th, for Interest calculation purposes, only Rs. 10,000/- will be considered for the current month. Only the next month will earn an interest on Rs. 20,000/-
Q21. When will the Interest get credited into my PPF Account?
The Interest will get credited at the end of each financial year.
Q22. From which account can an NRI invest into his/her PPF account?
An NRI can use funds in the NRE account or the NRO account to make investments in the PPF account.
Q23. Does the minimum investment of Rs. 500/- every year apply to NRIS's?
Yes, it applies to all individuals who have opened a PPF account irrespective of their residential status.
Q24. What happens on maturity of PPF Account of NRI?
If you are an NRI at the time the deposit matures, you would need to withdraw the balance.
Q25. Can an Individual who is an NRI at the time of maturity apply for extension for another 5 years?
No. An NRI is not eligible for extension on the PPF account.
Q26. What happens if an NRI leaves the account unattended past the maturity date?
Though this is not a recommended option, in such cases the account will be considered "extended without contribution" and can be closed by the NRI at any point he/she visits the country.
Q27. Do I have to pay Wealth Tax on the maturity proceeds of my PPF account?
No. The PPF Maturity proceeds as well as the amount accumulated in your PPF account are fully exempt from Wealth Tax irrespective of how much money you have in your PPF Account.
Q28. If I am involved in any legal dispute, can any court attach my PPF account to settle the same?
No. The balance in a PPF account cannot be attached under an order or decree of a court. This means that, if you're involved in a legal dispute, a court cannot attach or question the money in your PPF account like it can with your other personal property.
Q29. What was the best Interest rate ever offered by PPF?
During the initial days when the government was trying to motivate people to open PPF accounts they offered 12% interest per year.
Q30. Do you have historical PPF rate information?
Yes, I do. They are as follows:
From 01.04.1986 To 14.01.2000 - 12%
From 15.01.2000 To 28.02.2001 - 11%
From 01.03.2001 To 28.02.2002 - 9.5%
From 01.03.2002 To 28.03.2003 - 9%
From 01.03.2003 onwards - 8%
Q31. Can I open a PPF Account as a joint holder with my Spouse or anyone else?
No. A PPF account can be opened under only one name.
Q32. Can I nominate my spouse or anyone else to receive the PPF account proceeds?
Yes, you can. You can nominate as many people as you want. You need to register their name and bank account details while nominating them for your account.
Q33. Can the Nominee(s) continue to keep the PPF account open after the death of the account holder?
Yes, they can keep it open, but they cannot make any further contributions. The amount in the PPF account will continue to earn Interest until it is closed.
Q34. Will the PPF account proceeds be paid out even before 15 years in case of the death of the account holder?
Yes, it will be paid out even before completion of the mandatory 15 years’ time period in case of the death of the account holder
Q35. If the PPF account holder does not nominate anyone, who gets the money?
The Legal Heir of the PPF Account holder will get the money. Usually the Spouse or Kids of the account holder will be considered Legal Heirs in the absence of a legal Will document. There was an article a few months back about the importance of a legal will. Click Here to read it
Q36. How will the payment be made to the nominees after the death of the account holder?
A single cheque is issued in favor of all the nominees. So, it would be a good idea for the nominees to open a joint bank account. However, it would also be a good idea to keep the number of nominees to one or two and not too many.
Q37. I recently moved from one city to another. Can I get my PPF Account transferred to the new city?
Yes, you can. Locate a post office or a bank branch that services PPF accounts and submit a written request to get the account transferred along with details of your existing account that was opened in your old city.
Q38. Can I make withdrawals or apply for loans without the PPF Passbook? I know my PPF account number.
No. Without the PPF Passbook you cannot apply for partial withdrawals or apply for a loan.
Q39. What can I do if my passbook is lost or damaged?
If Lost - Visit the branch where you opened your PPF account with identity proof and submit a request for a replacement passbook. They will ask you for proof that you held a PPF Account, so, take some old statement or at least your PPF Account number before going.
If the book is damaged, you can take it to the branch where you opened and request a replacement book.
Q40. If my PPF Account is currently discontinued due to non-payment of the minimum amount and I opened a new PPF Account, can I close the old one and get the money?
No. The old account that was discontinued cannot be closed until it completes the 15 years lock-in period. I would rather reactivate my old account by paying the meager sum of Rs. 50/- rather than open a new account and have the hassle of maintaining two PPF accounts.
Q41. Can I Deposit more than 1 lakh in my PPF Account?
No you cannot. The upper limit is 1 lakh only. Even if you have multiple accounts (one in your name and one in your childs name) the 1 lakh limit includes both these accounts
Q42. I have been depositing more than 1 lakh each year. Is that a problem?
Yes. Though nobody is actually going to stop you from depositing more than 1 lakhs (Banks usually get a commission based on how much deposits they collect, so they wont stop you) the fact is you can only deposit a max. of 1 lakh. So, in future if you are identified as someone who is depositing more an 1 lakh, you may be asked to pay fines or penalties. So, I would recommend the better safe than sorry policy here.
Q43: I have a HUF PPF Account which is maturing soon. Can I renew it for another 5 year period?
No. The policies governing HUF PPF Accounts were amended in 2011 whereby such accounts will automatically mature at the end of 15 years and Cannot be Renewed.
Q44. When a normal PPF Account is allowed renewal, why is the HUF PPF Account prohibited from doing the same?
As with anything in our country, people have misused this PPF facility. The same person opens an individual PPF account to earn a 8% tax free interest at one post office/bank and then opens another as part of a HUF to enjoy double benefits. As the government doesnt want to restrict all HUF's in one shot, they have restricted the renewal so that people dont continue to misuse the facility.
Q45. I have a HUF along with my wife and daughters. What happens when my daughters get married?
When your daughter gets married, they are no longer part of your HUF. So, they are not part of the PPF Account as well.
Hopefully this answered all your PPF related questions. If it did, don’t forget to share it with your friends to that they too may take advantage of this wonderful tax saving investment option. If you have any more questions, feel free to leave a comment and I will answer them...