PPF Account | Interest Rate | Tax Benefits | Withdrawal | Age Limit

 

PPF Account | Interest Rate | Tax Benefits | Withdrawal | Age Limit

We have heard a lot about PPF. Many of us have PPF accounts. But the question is, ‘do we know everything about PPF?’ Some of us may know but for many of us, the investment areas always kind of remain hazy. This haziness comes from the fact that most of the investment instruments are described using jargon and are too lengthy and boring to read. In this article, we will try to take those factors out of the equation and try to explain everything about PPF in the simplest possible language that everyone can understand. The primary aim of this article will be to ensure that by the time you complete reading this article, you should be fully aware of what PPF really is and how it can help you (or perhaps, not help you). We are ready when you are. Need to grab a coffee? Grab it! It will take a while to complete reading this article.

Birth and Purpose of PPF Account

PPF or Public Provident Fund is an old fellow. Pretty old. The concept was conceived and given shape by the Government of India back in 1968. This means that PPF has been in business for 49 years now and next year, i.e. in 2017, it will turn 50 years old.

It is widely accepted that the longer a financial product stays in business, the safer and more trustworthy it gets. So, PPF or Public Provident Fund is something you can really count on. 49 years is something that cannot be taken lightly and PPF is going to stay around for many more years to come.

Now the question is, ‘what was the purpose of launching PPF?’ Good question! We all know that post-independence, India, which was 2nd richest country in this world (1st was China) in terms of global trade, became one of the poorest countries in world because of British Imperialistic exploitations. People really didn’t have ample money and the whole economy was struggling to get out of the terrible condition. So, it was important to encourage savings among people.

PPF was created as a tool for this massive task. The Ministry of Finance of the then ruling government said, investing in PPF will give the following benefits:

  • Whatever money is invested into PPF account will become tax-free. This means that if a person earns, say INR 500 and deposits INR 100 in PPF account, INR 100 will not be taxed under income tax deductions. Only INR 400 will become taxable. So, this means that people had to pay less income tax.
  • Again, interests that would be earned by PPF deposits will not be taxed. This means that if a person deposited INR 100 and earned an interest of say INR 9 (assuming that interest rate was 9%), the person will enjoy that INR 9 as tax-free earning. No taxes will be applied on the earned interest.
  • Saving in PPF account will create a corpus of money that will eventually work as a retirement security. This means that a person will have a lump sum amount of money in hand when he or she retires. This lump sum money will help the person to maintain a moderate and decent lifestyle post-retirement even when the monthly income earnings stop.

From taxation aspect, yes, Public Provident Fund became the most effective tax-saving instrument. That was the whole purpose of introducing PPF in market.

A Bit About PPF Accounts

Anyone who earns can create a PPF account and deposit money. However, there are limitations to the amount that can be deposited and for the amount of time such deposits can be made. The interest rate that is offered on PPF deposits changes every financial year. This rate is announced by the government. This interest rate can fluctuate from year to year. It can increase or it can decrease. For instance, the interest rate on PPF investments for fiscal year 2015-2016 was 8.7% and this has been reduced for 8.1 for the current fiscal year, i.e. 2016-2017.

Please remember that when we are referring to interest rates, we are actually referring to yearly interests. That is, interest that can be earned in one year.

So, if a person deposits just INR 100 in one year, the total interest he or she can earn in the current fiscal year (2016-2017) is INR 8.10. That is the yearly earning!

Opening PPF Account

In case you are willing to open a PPF account, you have to do so through a bank or a post office. There are no other options left. Which banks to approach? Well, you can approach any nationalized bank in the area you live. In case you are looking for a private sector bank, you need to first check whether the bank has authorization or not. If a bank or any of its branch has an authorization for opening PPF accounts for its customers, you can approach the bank. Post offices are all nationalized and hence, you can simply approach the post office in your area and open a PPF account.

In order to open a PPF account, you need to fill up an account opening form and also submit the necessary documents that the bank or post office asks for. While opening an account, you will also have to deposit the minimum allowed deposit amount. Once you do that, the PPF account will be opened and you can operate it as required.

However, you need to remember one thing. Just like the interest rate is not fixed and can change every year, the maximum yearly investment allowed in a PPF account can also change over time. The maximum allowed investment is also announced by the government.

Date Calculations in PPF Accounts

Because PPF is a financial product, it always follows the fiscal year and not the calendar year. The fiscal year is calculated from 1st of April every year to 31st of March next year. This means that the current fiscal year 2016-2017 started on April 1, 2016 and will end on March 31, 2017.

Going by this calendar, if you are opening an account in say, December, 2016, the first year of the account will be completed on March 31, 2017. However, if you are opening your account on say April 1, 2017, the first year for the account will be completed on March 31, 2018. In the first scenario, you will earn interest only for 4 months while in the second scenario, you will earn interest for a whole year.

Benefits and Features of PPF or Public Provident Fund

This is definitely one of the most important sections that you have been eyeing on, right? Well, in that case, let us waste time no further and begin.

Public Provident Fund comes with a number of advantages that include tax benefits, interest earnings and of course retirement security. However, one of the biggest advantage of PPF is its pocket-friendly nature. Unlike many other financial products on market, the PPF comes with two big advantages:

  • It is backed by Government of India and hence it is extremely secure.
  • The minimum deposit allowed under PPF is very low, making it a very good investment avenue for people belonging to very low income groups as well.

Now that we know the basic advantages, let us take a quick look at the features of PPF in a tabular format. We prefer a table over bullet points because it helps to get a quick grasp over things.

Features Details
Account opening at Any nationalized bank and its authorized branches. Any authorized private bank and its authorized branches. Post office.
Tenure of PPF account 15 years.
Interest rates applicable on deposits Changes every year. Interest rate is announced by the government at the beginning of each financial year. For the current financial year (2016-2017), it is 8.1% yearly. Interest earnings are calculated as compounded growth.
Minimum deposit for account opening INR 100.
Minimum and Maximum allowed in a year Minimum INR 500 and Maximum INR 150,000.
Maximum of times deposits can be made in a year 12
Failure to deposit It is mandatory to deposit the minimum amount every year. Failing to do so will make the account in active. However later, one can make a fresh deposit and the account will be activated again.
Methods that can be used for depositing money There are several options available for making deposits. Online transfer of funds, demand drafts, post office deposit, Cheque deposit or direct cash deposit.
Withdrawal facilities on PPF account Partial withdrawals are allowed under PPF account. This withdrawal can be made every year however; withdrawals are allowed only after the PPF account has completed 7 years. There are several conditions for withdrawal and under no conditions one can withdraw the full amount from the account only after the 15-year tenure of the account has been completed.
Tax advantages that can be availed on PPF All interests that are earned by the deposits in PPF account are free of any tax obligations. In other words, they are fully tax-free. Additionally, whatever amount is deposited in the account, is also tax-free or tax deductible. In other words, the deposited amount is first deducted from the total yearly income before applying income taxes.
Nomination options The account holder can opt for a nominee to the PPF investments. The nominee can be selected either during opening the account or any time after opening the account.
Joint Account options PPF has no provision for joint account.
Renewal options available One can wish to continue the PPF account after completion of the tenure. There is a condition. The renewal or extension is allowed for a period of 5 years. Extension for less than that or more than that is not allowed.
Fund transfer facility on PPF It is absolutely not possible to transfer PPF funds from one person’s account to another person’s account. However, one person can transfer funds from one bank to another bank or to a post office in an account of his own. This transfer is free.
Loan facility on PPF One can opt to take out a loan against PPF account. This is allowed only from 3rd year and not allowed after 6th year. Loans can be taken out multiple times but one has to make sure that the previous loan is paid in full for the next application to be accepted and granted.

Are There Any Benefits of Investing in PPF Account?

Of course there are benefits attached to PPF accounts and these benefits are really interesting. Let us take a quick look at the benefits that can be enjoyed by investing in Public Provident Fund.

  1. One of the greatest advantage is that PPF investments are completely safe because they are backed by the government. However, in case of complete economic meltdown (something of the type of Great Depression of 1930s), this safety no longer exists.
  2. Tax benefits are definitely one of the highlights of PPF accounts. Withdrawals and interest earnings under Public Provident Fund are tax-free and all investments (inflow) are tax-deductible or simply put, investments are also free of income taxes under section 80C.
  3. This investment avenue is perfect if investment goals are long term because PPF comes with a 7-year lock-in period.
  4. Those who want to ensure financial security after retirement, PPF is brilliant because all interest earnings are calculated a compounded rate. This means that by the time the PPF account matures, the final corpus grows significantly.
  5. PPF accounts are easy to open. They can be opened from any nationalized bank or private bank (authorized banks in private sector). For tech savvy people, online opening of accounts is also possible. Also post offices can be approached for opening PPF account.
  6. One of the most important benefits of PPF account is that it is free of attachments. This means that even the court has no right of attaching a PPF account for recovery of defaulted loans from a loaner. However, government has the right of touching the PPF account to deduct unpaid taxes if conditions show up.

Some Strict PPF Rules That One Needs to Follow

Public Provident Fund has a set of predefined rules and one needs to make sure that all these rules are followed. In case someone fails to follow the rules, PPF account can be terminated once found out by the authorities. Different aspects of PPF are covered under these rules and include account opening, maintenance of an account, loan facilities etc. Let us take a look at these rules.

Rules for Opening PPF Account – Eligibility Rules

  1. No more than one account can be opened in name of one person.
  2. The person should be an adult in order to open a PPF account.
  3. As long as a person is above 18 years, he or she can open a PPF account. There is no age cap allotted.
  4. The person needs to be RESIDENT INDIAN in order to open PPF account.
  5. NRI’s or non-resident Indians are not allowed to open PPF account. There is however a small twist. If a resident Indian opens a PPF account and then becomes NRI, he or she will be allowed to continue with the account till it becomes mature. The 5-year extension rule will however become void. The account has to be closed after 15 years and all accumulated fund is to be withdrawn.
  6. Under no circumstances can a foreigner (resident and citizen of another country) will be allowed to open PPF account.
  7. 2005 onward it became a rule that HUFs or Hindu Undivided Families cannot open PPF accounts. PPF accounts that were already operational before May 13, 2005 will continue to exist until maturity. However, the 5-year extension rule will cease to exist.
  8. An individual is also forbidden from opening PPF account on behalf of HUF.
  9. Though it is a rule that a person needs to be an adult for opening a PPF account, there is a provision of opening PPF account for minors too. However, under no circumstances the collective fund in the minor’s account and in the account of the guardian or parent can exceed the maximum limit of INR 1.5 lakhs in any given financial year.
  10. Grandparents are not allowed to open accounts in name of their grandchildren who minor. If grandchildren are not minors, grandparents can open accounts for them.

Rules for Opening PPF Account – Documents that Need to be Furnished

There are several documents that one needs to provide while opening a PPF account. However, it is very important that all the documents are latest and up to date. Here is the list of documents that a bank or a post office will be asking for in order to open a PPF account:

  1. Passport, Voter’s ID Card, PAN Card, Ration Card, Aadhar Card, Utility Bill, Employer’s Letter, Driving License, Statements of Bank Account, Lease or Rental Agreement etc. Not all will be required but one needs to provide that are proof of his or her identity and address. Which documents will be required will be notified by the bank or post office.
  2. A signed Cheque will be asked for as a document for signature verification.
  3. Recent passport-sized photographs will be required.
  4. A completed form for account opening has to be submitted.
  5. In case the person wants to select a nominee during account opening, a filled up nomination form has to be submitted and should contain the name of the nominee(s).
  6. In case the PPF account is opened for a minor, a proper birth certificate is to be furnished. In absence of a birth certificate, a school certificate clearly mentioning the date of birth of the child has to be provided.

Do remember that the list provided above is only general. In no sense it can be considered as exhaustive and final. The post office or the bank may ask for other documents if deemed necessary.

How to Open a PPF Account?

This isn’t very terrible as it sounds. The steps are simple and very easy. As mentioned earlier, one can opt to visit an authorized bank or a post office to open an account or simply use the online service of PPF account opening. This online service is usually provided by authorized banks. Online account opening is not possible in case a person chooses post office.

Let us take a look at both online and offline methods:

Offline Method for Opening PPF Account

  1. Visit an authorized bank or a post office of your choice and ask for PPF account opening form and nomination form (if you want to nominate someone).
  2. Fill up the form(s) properly and the attach all the documents as mentioned by the bank or the post office.
  3. Submit the form along with the initial deposit that is required for opening a PPF account.
  4. Wait until the bank or post office verifies all information.
  5. Once the account is opened, you will be notified by the bank or post office.

Online Method for opening PPF Account

The benefit of this method over the offline method is that it takes out the need for physically visiting a bank or a post office. It saves time and of course, cuts off some traveling expenses (if at all). However, there is a problem. Online service is available only for banks.

  1. Visit the bank’s online portal and click on open PPF account link.
  2. Follow the steps that are required during online process. You will get on-screen instructions.
  3. The bank may accept some documents in scanned format. In case that is not the case, you may eventually have to visit the bank to provide those documents (for instance, if you are using SBI online services, you will have to go to the bank to submit the documents manually).
  4. You will get an option of linking your savings account directly to the PPF account so that you can deposit the initial deposit amount. In case the bank requires manual submission of the form, you will have to first deposit the initial amount manually at the branch.

Exact steps for online method cannot be provided because all banks have different navigation steps in their online portals. You need to find out the same by logging into your net banking portal. If you have an account in SBI, you will find the service under the tab e-Services.

In this second part of the article titled Everything You Need to Know About PPF or Public Provident Fund, we are going to cover several aspects like the list of banks where PPF account can be opened, types of forms that are associated with PPF account, PPF investment defaults and deactivation and reactivation of PPF account and more. Just like our previous part, this part of the article will be slightly long. Stay with us and by the time you finish reading this article, you will be rewarded with a wealth of knowledge that will help you to make informed decisions. So, without further ado, let’s begin with our journey!

List of Banks Where PPF Account Can Be Opened

List of All Public Sector Banks That Are Authorized to Open PPF Account

Allahabad Bank
Andhra Bank
Bank of Baroda
Bank of India
Bank of Maharashtra
Canara Bank
Central Bank of India
Corporation Bank
Dena Bank
IDBI Bank
Indian Overseas Bank
Oriental Bank of Commerce
Punjab and Sind Bank
Punjab National Bank
State Bank of Bikaner and Jaipur
State Bank of Hyderabad
State Bank of India
State Bank of Mysore
State Bank of Patiala
State Bank of Travancore
UCO Bank
Union Bank of India
United Bank of India
Vijaya Bank
List of All Private Sector Banks That Are Authorized to Open PPF Account
Axis Bank
ICICI Bank

The banks listed above may have different branches authorized for opening PPF account. In order to find out the list of authorized branches, you can visit the online banking portal of each bank or simply visit the nearest branch and ask for the list. People often ask whether HDFC bank has PPF options or not. Unfortunately, despite its reputation, HDFC bank has received no authorization from the government to provide PPF services to its customers. In near future the bank may receive authorization but that is uncertain.

Details of All Forms Associated with PPF Account

There are 8 different types of forms that are associated with a PPF account. These forms have been named in alphabetical order from A to H. Let us take a quick look at purpose of each of this form.

Form A: This form is meant for opening a new PPF account. In case you want to open a PPF account, you will be asked to fill up this form properly and submit it along with necessary documents. The details of the account holder have to be included in this form which include name, PAN details, address, signature etc. Even the details of the minor (in case the account is for a minor) has to be provided. In case an agent is mediating and helping to open up the account, the full name of the agent has to be included in the form too. The amount of money that is being used for opening the account has to be clearly mentioned.

Form B: This form is more like a pay-in slip. In case a person is physically depositing funds in the account or is repaying the loan he or she has taken out against the PPF account or is paying the penalty amount for account reactivation, he or she has to fill up this form and submit along with the money.

Form C: This form is designed for partial withdrawals, which are allowed only after the PPF account has attained the age of 7 years. If you want to make partial withdrawals, you need to fill up this form stating the withdrawal amount. A self-declaration is also required where you will need to require that no other partial withdrawals took place in the same financial year. The form contains a place for this self-declaration.

Form D: Since PPF accounts allow loans, you can use this form for the purpose. Do remember that loans can be taken out only from 3rd year of PPF till the 6th year of PPF account. This form is necessary for such loan applications where the loan amount is to be mentioned and you as a borrower will have to agree to repay the loan amount in entirety along with interest payments within 3 years from date of loan disbursal.

Form E: This is a nomination form. You will have to provide the name and address as well as your relationship with the nominee in this form. In case you are selecting multiple nominees, the same details are to be provided for each one of them. In addition, you will also have to state the %age of accumulated fund each nominee gets in case of your death. You cannot select nominee(s) if the PPF account is in name of a minor.

Form F: This form is designed for changing nomination information anytime during the full tenure of a particular PPF account. The allowed changes are cancellation of nomination, replacement of nomination or alteration of information of a nominee. Also the form can be used if you want to redo the percentage of claims different nominees can lay on the accumulated fund.

Form G: is form is designed for the nominees or heirs (legal) who can lay claim on the accumulated PPF funds in case the account holder dies. The legal heirs or nominees need to fill up all information (their details and relationship with the deceased person) and also fill up the field which asks for confirmation that death certificate of the deceased person has been attached along with the form.

Form H: This final form is designed for increasing the tenure of a PPF account in slabs of 5 years. This form will require two specific information – date on which the PPF account was opened and the PPF account number.

Now that you have a fair idea of all the forms that are associated with a PPF account, you should not have any further difficulty in opening or managing your PPF account. In case you still face trouble, feel free to speak to your bank personnel. They will be more than happy to help.

 

Interest Rates on PPF Investments

Okay, this is something that is very fascinating. Everyone want to know how much return they can expect from their investments. However, just like any financial investment, PPF account is also subject to market risks. Good thing however is that the interest rate remains fixed for a whole financial year. So, even if the market rate of interest drops, you can still enjoy higher interest earnings as specified by the government. On the other hand, if the market interest rates go up, you will be on the losing end of the game. There is absolutely nothing you can do.

No. Years PPF Year PPF Interest Rate
1 2016-17 8.1
2 2015- 16 8.7
3 2014-15 8.7
4 2013 14 8.7
5 2012-13 8.8
6 2011-12 8.6
7 2010-11 9.5
8 2009-10 8.5
9 2008-09 8.5
10 2007-08 8.5
11 2006-07 8.5
12 2005-06 8.5
13 2004-05 9.5
14 2003-04 9.5
15 2002-03 9.5
16 2001-02 9.5
17 2000-01 12

How is Interest on PPF Calculated?

Though no one has a hand in deciding the interest rates for PPF except the government, it is still good to know how the interest rates are calculated for each year. There are two factors that pitch in. The government takes account of the 10-year government bond rates. These rates are dependent on current market rate for bonds and inflation rates. If inflation and current market rate for bonds fluctuate, the 10-year government bond rates also fluctuate. Interestingly, the PPF interest rates are aligned with these 10-year government bond rates. Hence, if the government bond rates go down, PPF interest goes down and vice versa. This again translates into the fact that PPF interest rates never go below inflation rates because inflation rate decides 10-year government bond rates! If you find this information too complex, you can safely ignore the mechanism that drives the interest rates on PPF and always know that the interest rate on PPF will not fall below inflation rate and hence, you are safe!

Historical Chart of Interest Rates on PPF

PPF Account interest Rate History Chart

 

Deactivation, Reactivation and Penalty Rules of PPF Account

As mentioned in part I of this article, PPF account is subject to certain rules. One of them is a minimum yearly deposit of INR 500. This has to be met under all circumstances. If you fail to deposit the minimum yearly amount, the account will become inactive, that is, it will be deactivated. However, this deactivation is temporary.

The temporarily inactive PPF account can be again reactivated by paying a penalty for each year during which the account stayed inactive and at least the minimum yearly investment (he can pay more if he wants to) for all years during which the PPF account was inactive.

Let us explain this with an example.

Suppose the account was opened in 2005 and the account holder invested regularly for first three years. That is, he invested for 2005, 2006 and 2007. Then suddenly, he stopped investing for next three years, i.e. 2008, 2009 and 2010.

So, the account became inactive in 2008 and it remained inactive till 2010. Now the person wants to reactivate the account in 2011. Here is what he needs to do:

  1. He needs to pay the penalty for year 2008, 2009 and 2010. This will be INR 50 for each year. This means that total penalty will be INR 150 for three years.
  2. He will have to pay at least the minimum yearly payment for the three years during which the account stayed inactive. This means, he has to pay INR 500 for 2008, INR 500 for 2009 and INR 500 for 2010 and an additional INR 500 (minimum) for year 2011. This will be a total of INR 2000.

So in 2011, the person has to pay a total of INR 2000 + INR 150 = INR 2150 at once to get the account reactivated.

However, one needs to keep one thing in mind. During the years when the account remains inactive, loan facility will be inactive too!

Isn’t that simple? Well, believe it or not, it is really simple!

PPF Account – Withdrawal Rules and Closure Rules

PPF accounts are also subject to some rules when it comes to withdrawing funds from the account or closing the account completely. Let us take a look at the rules in slight details so that you can get a clear understanding of how it works.

No Closure Before Tenure Completion

You need to keep this in mind very seriously. Unless the account reaches its maturity, the PPF account cannot be closed! This means that a PPF account needs to run its full course of 15 years before it can be closed.

Once the tenure is completed, i.e. 15 years are completed, you are free to withdraw the whole amount in your PPF account, including the accumulated interest earnings and you can close the account.

PPF Account Partial Withdrawal Rules

That’s complete withdrawal rule. But what if, a person is in need of emergency funds? Well, there is a slight glitch in this case. There are a few things that can happen

  1. If emergency funds are required within the first two years of opening PPF account – there is nothing that can be done. No one – no PPF account holder – is allowed to touch the funds within the first two years.
  2. If emergency funds are required on 3rd year or till 6th year of running PPF account – withdrawals are not allowed but one can opt for loan against the PPF account at a very low interest rate of 2%. This loan has to be paid back within 3 years from the date the loan is disbursed. However, if the person fails to repay the loan in full within that time frame, interest rate will be increased to 6%.
  3. The final option is that the emergency funds are required on 7th year or any year after that. This is where PPF savings can come in handy. PPF allows partial withdrawal from 7th year onward. That is after the completion of the 6th

In case you are going for partial withdrawal, there is a limit to how much you can withdraw. Here are the rules:

The amount of partial withdrawal has to be lower of the following:

  1. 50% of total accumulated balance in the PPF account at the end of 4th fiscal year. This 4th financial year is calculated by counting backwards from the year on which the partial withdrawal is requested. This means that if the partial withdrawal is requested on say the 8th year, counting backwards, the fourth year will be 5th year of PPF. So, 50% of total balance in the account (invested amount + accrued interest) will be eligible for partial withdrawal.
  2. 50% of total balance available in the year right before the year in which the partial withdrawal request has been made.

It will be very easy to assume that the first option will always be lower than the second option and hence, only the first option applies. This however is true only for the first ever partial withdrawal. For the second time or third time or any subsequent partial withdrawal, the second option is more likely to be valid. It has to be remembered that only one partial withdrawal can be made in a given financial year.

PPF Account – Extension or Renewal

A PPF account becomes mature when the 15th financial year is completed. This is counted from the financial year in which the PPF account was actually opened. Upon maturity the account holder will have two options:

  1. Withdraw everything from the account and close the account.
  2. Increase the tenure of the PPF account in predefined slabs of 5 years each.

In case the second option is chosen, some other rules come in. These rules are:

  1. Once the PPF account is renewed or extended for 5 years, the account holder may decide not to make any new investments. There will be no penalties applicable for doing so and still the fund sitting in the account will continue to earn interest at compounded rate. This interest earning will continue until the end of the 5th year for the newly extended time frame. During this period, funds can be withdrawn. There are no restrictions to the amount of fund that can be withdrawn except thatcomplete withdrawal will not be allowed and withdrawal more than once in a single financial year is also prohibited.
  2. The account holder may wish to keep investing. New investments will be added to the account and interest will be calculated accordingly. Withdrawals are allowed once every fiscal year but withdrawals will be limited to 60% of total accumulated fund in the account at the beginning of each 5-year slab.

What Type of Taxation Rule Is Applicable for PPF?

Public Provident Fund falls under EEE taxation rule. EEE stands for Exempt-Exempt-Exempt. This means:

  1. All investments you make under PPF (subject to a maximum of 1.5 lakhs a year) can be claimed for tax deductions under Income Tax Act’s section 80C. This means that taxes will not be applied on those investments while calculating income tax.
  2. All interest earnings that are accrued under the PPF investments will be tax free.
  3. Once the PPF account matures and the amount is withdrawn from the account, it will not fall under wealth tax and will be handed over to the account holder as is without any deductions.

This means that inflow, growth and outflow are all exempted from taxation.

One interesting thing you need to know and carefully keep in mind is that:

“If you are investing in a PPF account in name of your child or in name of your spouse, you can still enjoy tax benefits as long as the total yearly investments in all PPF accounts where you invest or contribute does not collectively exceed INR 150,000 per year.”

This means that if the maximum cap is not adhered to and the investment amount exceeds the capped amount, the excess will be taxed in inflow and outflow category.  The excess amount will not earn any interest and will simply sit in the account. That’s EEE rule will no longer be applicable for the extra investment.

What is a PPF Calculator and Why Is It Important?

You must have heard of PPF calculator and also seen one here or there online. Usually, this calculator can be found on websites of banks and post offices but there are several 3rd party online services like simple informative websites that can provide this calculator. So, why do you need it? Actually it is not mandatory to use the calculator but it can be helpful. The ways it can help are:

  1. If you are planning on investing in PPF and you have a certain yearly investment amount in mind, you can calculate and see the amount of money you can earn by the end of 15 years and the amount of tax you can save by that time.
  2. You can also calculate the gains you can achieve if you decide to go for with-investment or without-investment extension of account post maturity.
  3. In case you have a PPF account in place and you are looking for loans or withdrawals, you can quickly get calculations for remaining balance after withdrawals or amount of loan you are eligible for or amount of interest you need to pay on your loans etc. This becomes really handy when you want to compare such features against other financial tools like Mutual Funds, RDs and FDs etc.
  4. PPF calculators are pre-coded with all rules of PPF. This means that if you are planning on loans or withdrawals, you can find the exact amount you are eligible for within the set rules.

That’s pretty much everything you need to know about PPF or Public Provident Fund. However, before we finish off this article, let us address some important questions that are frequently asked by people. Though all the questions have already been answered, we will still give them in a comprehensive Q/A fashion for easy grasping.

PPF – Frequently Asked Question

Question: Is it possible to have multiple accounts under a single name?

Answer: No, that is totally not possible. However, you can always contribute to a PPF account that is opened on someone else’s name like your child or your spouse.

Question: If the account becomes inactive for a few years, will I still continue to earn interest?

Answer: No! No interests will be earned for the years during which the account stays inactive. Once the account is reactivated, interest earnings will start on the balance at the time when the account is reactivated.

Question: Is it possible to claim tax deductions on investments I make into PPF accounts on my spouse’s or child’s name?

Answer: Tax deductions can be enjoyed only on the maximum capped investment amount of INR 1.5 lakhs. Investments above that will be taxed. For example, if you invest 1 lakh yearly in PPF account on your name, 1 lakh yearly in PPF account on your spouse’s name and 1 lakh yearly in PPF account on your child’s name, the total yearly investment becomes INR 3 lakhs. You can claim tax deductions on just INR 1.5 lakhs. The remaining INR 1.5 lakhs will be taxed.

Question: What will happen to the excess investment above INR 1.5 lakhs per year? Will it earn interest?

Answer: The excess investment above INR 1.5 lakhs will not earn interest. It will be taxed while calculating income tax and it will also be taxed under wealth tax when withdrawing.

Question: What if the maximum investment cap in PPF is increased midway between a financial year?

Answer: If that happens, you will have the liberty of investing the increased amount anytime during the year before the financial year ends. Banks and post offices are all notified by government to accept additional investments in case the investment limit is raised mid-year.

Question: Last year I received interest for just 11 months and not for 12 months. Why so?

Answer: There is a specific method of calculating PPF interests. In order for an investment to be considered for PPF calculation, one needs to make an investment either before 5th of every month or on 5th. After 5th, the investment is not considered for interest calculation of that month. It will rather be carried over to the next month for interest calculation. Also remember that the lower of the total fund in the account on 5th and on the last day of the month will be considered for interest calculation. This can be clarified using an example.

Let us assume that you invest INR 1.5 lakhs a year but you do so in two installments. Once you pay INR 1 lakh in August and then you pay INR 50,000 in September. Now suppose you wanted to pay this INR 50,000 in September but you ended up paying it on 8th of September instead of 5th of September or on the first 4 days of that month. So, according to the rules, the interest calculations for September will not take account of INR 50,000 investment. Interest will be calculated only on INR 1 lakh that you invested in August. The additional INR 50,000 will be carried over to October for interest will be calculated accordingly. That’s the reason why you missed a month’s worth of interest and received only 11 months of interest earnings instead of 12 months.

Question: I want to extend by PPF account by just two years after it matures. Is that possible?

Answer: No that is not possible. Extensions are allowed only in blocks of 5 years – no more, no less.

Question: How many times can I extend my account in 5-year blocks?

Answer: As many times as you want. There are no restrictions on this.

Question: Is it possible to avail both loan and partial withdrawal from PPF account at the same time?

Answer: Absolutely NOT! These two features are mutually exclusive. This means, if one exists, the other cannot. Loan is allowed from 3rd year of PPF account to 6th year. Partial withdrawals are allowed only from 7th year of PPF account. This means, they cannot coexist and hence, the idea of availing both at the same time is completely ruled out by the laid down laws.

Question: I took a loan from a private bank and I defaulted. Will the bank take the money from by PPF account?

Answer: No, that is not possible under any circumstances. By law, not even a court can attach the PPF account and ask the bank to recover the money from the account. This means that PPF investments will stay intact even if you default on other loans. However, if you default on your taxes, the government has full rights to liquidate your PPF account partially or completely and take the amount of taxes you owe.

Well, this concludes our article on Public Provident Fund. In case you have any further questions, feel free to drop your comments. We will try our best to answer your queries.

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