Want to know more about PPF ? Here is our Guide On PPF - Public Provident Fund India



  • Public Provident Fund Scheme is a saving scheme that comes with tax benefits. Ministry of Finance introduced this scheme in the year 1968. The main objective of PPF is to encourage general people to mobilize their small savings. The interest offered on these schemes are not taxable. Precisely, PPF is an investment with non-taxable returns.

    What Is Public Provident Fund (PPF) Account?
    General public has to open Public Provident Fund accounts to use PPF schemes. These accounts get opened for fixed period. The account holders will earn interest on their savings. Unlike traditional FDs, the return rates are not fixed. The Government announced PPF interest of 8.7% for the fiscal year 2015 - 2016.

    This scheme was introduced for low-income classes. So, that more people would save in the shape of investment with non-taxable returns. This is why the minimum deposit limits are very low as compared to other investment schemes. Exemption from a tax is the main attraction of PPF accounts. Secondly, people can access them easily. Government back these accounts so that account holders will feel safe about their investment. PPF accounts are simple to open and use, thus making them most popular saving schemes among low-income classes of India.

    Anyone can open PFF account at nationalized & authorized banks as well as post offices. In fact, some authorized private banks can offer this scheme. People have to submit account forms with required document and minimum deposits to open an account.

    As said earlier, interest rates are not fixed. The government of India has the power to change the interest rates. Maximum deposit limit has been specified. This limit is subject to change as per the government.

    Regardless of submission date, the deposit year for every PPF account is April 1st - March 31st.

    Salient Features Of PPF Scheme
    The key features of Public Provident Fund Scheme are stated as below:

    Variable Interest Rate:
    PPF schemes are not like fixed deposits. So, the interest rate gets changed on the regular term by Indian Government. The interest for every PPF scheme is compounded annually.
    PPF Interest rate is 8% p.a for quarter Oct-Dec'18 compounded annually.

    Tenure:
    The deposit will be locked in for straight 15 years. You can withdraw the money after completion of the maturity period. Well, You can make the pre-mature withdrawal. But it is possible only after the end of the sixth financial year. After maturity period, you can have amount plus interest without paying any tax!

    Minimum Deposit:
    The minimum deposit of Rs. 100 is required to open PPF account.

    Frequent Deposits:
    To make the account active, you have to make deposits for 15 years annually. Otherwise, the account will be considered as inactive.

    Deposit Mediums:
    Deposits can be made by cash, online funds transfer, cheque, DD, PO, lump-sum or 12 instalments, etc.

    Withdrawals:
    Precisely, you can make the withdrawal of money with compounded interest after maturity period of 15 years. But there is an option of partial withdrawal after the end of the 6th financial year. This pre-mature withdrawal is subject to certain conditions.

    Tax Benefits:
    The interest is non-taxable. But deposits are taxable under S 80C of Income Tax Act. While no wealth tax is applicable for withdrawals.

    Nomination:
    PFF account allows nomination at the time of opening or later.

    Transfer Of Funds:
    You cannot transfer funds to other people. But you can make transfers between different bank branches or post offices.

    Loans:
    PFF accounts can be used to avail loans with the tenure of 3 - 6 years.

    Renewal:
    You can renew the account for an extra 5 years once a time.

    Joint Accounts:
    PPF accounts are not joint accounts.

    Why Should You Invest In PPF Scheme?
    Here are the reasons why PPF Scheme is a popular investment avenue:

    Appealing Long-term Investment: Deposits are made for 15 years in PPF schemes. There is a locked in period for 7 years. In this way, it is an attractive long-term investment with handsome prospects.

    Beneficial For Retirement Plans: Retired people tend to look for tax-free investment with appealing interest rates. PPF is an ideal investment option for retirement planning.

    Tax Benefits: No tax will be deducted from compounded interest and withdrawals. Although, deposits are subject to taxation.

    Accessible: PPF schemes are offered by nationalised & authorised banks plus post offices. Both options are widely accessible in India. You can open the account online too!

    Rules And Regulations Of Public Provident Fund Scheme
    As we know, PPF scheme is run by Government of India. It means proper rules and regulations are associated with this scheme. In this section, you will learn important details about eligibility and documentation of PPF accounts. After reading this section, you can easily open and maintain PPF account on your own.

    Eligibility For PPF Account
    One PPF account is fixed for one person. Any Indian resident above the age of 18 years is eligible to open PPF account.

    Minors can open PPF account. In this case, maximum deposit limit of 1.5 lakh per year is fixed for minor & guardian's account collectively. Grandparents are not allowed to open the account as per the names of minors.

    Non-resident Indians are not allowed to open PPF account. However, if anyone leaves the country after opening PFF account and become NRI later, can maintain the account until maturity. But that person cannot renew the account.

    Before 2005, HUFs were allowed to open a PPF account. The accounts had opened before 2005 were continue to operate until the maturity period. No one can initiate the account for any HUF. HUF means Hindu Undivided Family.

    Foreigners are not allowed to open the account.

    Public Provident Fund Account Documentation
    Three types of documents are needed to open PPf account. Such as, Identity proof, address proof, and signature proof.

    Following documents are required for PPF account:

    Adhar Card, PAN card, Passport, Voter's ID, Driving License, Utility Bill, Rental/Lease Agreement, Ration Card, Bank Statement or Signed Cheque

    Latest Photographs

    Account Opening Form and nominee form in case of nomination

    The banks may ask for further documents in special scenarios. For instance, age proof will be needed to open PPF for a minor.

    How To Open Public Provident Fund Account?
    You can open PPF account via following channels:

    Bank / Post Office: In order to open PPF account, you should visit any bank or post office nearby, who is authorised for PPF scheme. There you can get required forms for opening of account. Fill the form and submit with essential documents. An initial investment is mandatory for opening; that can be a minimum of Rs. 100.

    Online: Some banks offer an option for the online opening of PPF account. you can visit their official website for further details. The online opening of account saves the time, traveling cost and effort. That is why this scheme is gaining popularity with time.

    Types OF PPF Forms
    For each purpose, there is a specific PPF form. They start from A to H. Please check the details about each one as below:

    Form A (PPF Account Opening form)
    As the name implies, this form is mandatory to open PPF account. The prime particulars of Form A include name, address, signature and PAN Card details. For minors, further information like names of minor & Guardian and their relationship will be needed. In case, the agent has opened the account, name of the agent is required.

    Form B (Deposit or Loan Repay Form)
    To make the deposit or repay the loan taken against PPF, Form B is needed. You may make the payment as penality to reactivate the account. Always remember, you have to make deposits annually. Otherwise, the account will be deemed as inactive. The account holder can receive the loan against PPF account for the period 3 - 6 years, starting from an opening year. The deposits can be made by cheque, cash, DD or internet banking. The medium has to be mentioned in Pay-in-slip. If an agent is making the deposits, the details of an agent are mandatory.

    Form C (Partial Withdrawal Form)
    To withdraw money before maturity, Form C is needed. This is an application to make the withdrawal of a certain amount after the end of a 6th financial year. You have to make the declaration in this form about no further withdrawals in the same year.

    Form D (Loan Form)
    A loan for  3 - 6 years can be availed against active PPF account. Form D is required for this purpose. Its key particulars include PPF account number, the amount of loan and promise to pay the amount within tenure with interest.

    Form E (Nomination Form)
    An account holder can make the nomination for more than one person. Form E is needed for this task. In this, you have to include details about nominees. For multiple nominations, you have to specify the percentage by which they can claim the amount. Nominations are not allowed for minor's account.

    Form F (To Alter Nomination Information)
    You can add or remove the nominee at any time. For this purpose, Form F is required.

    From G (Claim Funds By Nominee/Legal Heir)
    If account holder dies, the nominees or legal heirs can claim funds using Form G. Along with essential information; the death certificate is needed to be attached with this form.

    Form H (Maturity Extension Form)
    The standard maturity time for PPF account is 15 years. But an account holder can extend it for extra five years at a time. You need a Form H for maturity extension. The key information includes an account number and opening account date.

    Public Provident Fund Deposit Limits
    Initially, the person has to deposit at least Rs. 100 to open the account. While the minimum deposit per year is Rs. 500. To keep the account active, annual deposits are mandatory. Otherwise, the account holder will end up with the inactive account.

    The maximum annual limit for deposit is Rs. 1.5 lakhs. You have the option to pay it as lump sum amount or 12 installments per year. You can even pay an amount as two installments per month. This scheme is that convenient!

    How To Reactivate An Inactive PPF Account?
    Annual deposits are essential to keep the account active. Otherwise, the account will be deemed inactive.

    The account can be reactivated by paying the penalty plus minimum deposits for total inactive years. The penalty is Rs. 50 per inactive year. You should keep the PPF account active. Otherwise, loan and withdrawal won't longer be available!

    How To Withdraw The Investment From PPF Account?
    PPF account is opened for 15 years. It means the withdrawals are allowed after 15 years. You can withdraw entire amount with non-taxable interest once the maturity period is done.

    But in the case of extreme urgency, there is an option to do partial withdrawal after the end of 6th year. The amount of partial withdrawal is equal to 50% of total amount residing in the account at the end of the fourth year or preceding year, whichever is lower!

    Another important fact, you can make withdrawal once in a year.

    Extension Of PPF Account Tenure
    The 15 years maturity period is fixed for PPF accounts. However, you may extend the tenure for five years with or without addition of deposits:

    After the maturity period, you can extend the tenure for five years without any additional investment. The interest will be compounded on the total amount present at the end of 15th year.

    In case you have added deposits to extend the tenure, the interest will be accrued on total amount. But the withdrawal amount will be restricted to 60% of total amount in the start of extension!

    What Are The Tax Benefits Of PPF Account?
    Tax benefits are the actual attractions about PPF scheme. Basically, this scheme falls in tax category of EEE. EEE means (Exempt, Exempt, Exempt).

    Deposits are taxable under S 80C of Income Tax.

    Interest earned are non-taxable.

    Withdrawals are not subject to wealth tax.

    Frequently Asked Questions About Public Provident Fund Account
    We have explained everything about PPF account. Still, there are some questions which are frequently asked about PPF. We have addressed few of them as below:

    Can I open 2 or more PPF accounts in my name?
    According to PPF scheme, a person can open and maintain only one account.

    Can I reactivate my inactive account? 
    Yes, you can use inactive account by paying the penalty along with deposits for each missed year. The penalty of Rs. 50 per year will be charged if you are not making deposits!

    Will I receive the interest for an inactive account?
    No, you cannot earn interest, if the PPF account is inactive. You have to pay penalties plus missed deposits to reactivate the account.

    Can I invest more than the Rs. 1.5 lakhs limit? 
    No, you cannot invest more than Rs. 1.5 lakh annually.

    Can I open PPF account on behalf of my grandchild? 
    No, grandparents are not allowed to open a PPF account in the name of grandchildren.

    Can I withdraw investment before 15 years? 
    Yes, you can make the partial withdrawal after the end of 6th year. This partial withdrawal is subject to certain legal terms and regulations.

    Conclusion
    Public Provident Fund is a perfect investment option for low-income classes. It comes with tax benefits that are no longer offered by any other investment scheme. Long term investment with non-taxable earnings make it an ideal option for retirement planning. Backed by Government and easy to access are the features that make PPF scheme so famous among general public!

    Hopefully, this article was proved to be helpful. In a case of any query related to PPF, please comment below!



  • Looking at the falling rates of PPF, I wonder if it's still an attractive investment option. My father had done maximum of his savings in PPF. It's a tax saving investment. But, now interest rate reduced to 7.6% only.
    I have few funds in PPF. But, I am thinking to check other long term investment options that can give better returns. Can you share some good investment options? Thanks.



  • If you are looking for other tax saving options with more returns, then give a thought over ELSS schemes.
    It has minimum lock in period and tax exemption too.



  • @jatinderchd , thanks!! indeed a detailed article on PPF. Would be helpful if you can explain the pros and cons as well.



  • @kvijay12345 Pros and cons of PPF could be yet another post .. 🙂 .. I saw that you also work in financial industry, if you can sum up the pros and cons in few words, that would be great.



  • @jatinderchd Thanks Jatin 🙂

    I could think of the below , please take a look :

    The PPF is a tax-saving investment for deductions under Section 80CCD that has a large appeal. It is generally the first tax-saving investment that people tend to make because it comes recommended by their elders due to compound effect ( the eighth wonder) . But it is important to understand the pros and cons before you invest in it.

    Pros of Public Provident Fund:

    • The Earnings are tax-free upon maturity.
    • There are Guaranteed returns as per the interest set by the government every year.
    • A Complete capital protection option- It is Government supported scheme.
    • There is an option to make partial withdrawals and loans.
    • It is easy to open an account in banks or post offices.
    • A minimum investment of Rs 500 only per year is required.
    • There is an option to extend tenure with or without contributions.

    Cons of Public Provident Fund:

    • The lock-in period is 15 years that seems to be too long.
    • NRIs and HUFs cannot open a PPF account.
    • Only one account is allowed for every citizen of India.
    • Since the lock-in period is 15 years , interest rate is low in comparison to other investment schemes like ELSS mutual funds etc.


  • @kvijay12345 The PPF interest rate has again been increased after a long time I think. I heard PPF interest rate is 8% p.a. now. Is it true and will it be beneficial? or Should one go for other alternatives? Any review on this.



  • @prateek I also thought ELSS is a good tax saving option until no tax was charged on capital gain arising from it. But, from this year, tax @10% has been imposed on ELSS funds also, I heard of it. I already have my money invested in ELSS but now I am really concerned that my returns will reduce due to this new tax factor on equity funds. ELSS is no longer a tax saving tool, I suppose. I am thinking to open a PPF account as well and divert some money to it. At least, the maturity amount is free in case of PPF. What is your opinion on this? PPF vs ELSS Which is better investment? Please guide.



  • @kvijay12345 Thanks for adding some more useful details. PPF has been a favourite investment and tax saving tool for risk averse investors since ages 🙂 Investors who look for safe investments, their most common choices are Fixed deposits and PPF.
    However, with changing times, people have started thinking beyond these traditional investing instruments.



  • @harleen That's right 🙂 a conventional and traditional way of thinking but time to change the clock.



  • Thanks for bringing it up , The current interest rate effective from 1 October 2018 is 8.0% Per Annum' (compounded annually).

    There is no good and bad investment , what we are discussing here depends on individuals (for a risk-averse individual) , it is the risk-free investment mode , provided you take care of below things before investing:

    PPF's salient features :

    • Tenure: 15 years; after 15 years completion account can be extended by 5 years at a time
    • Account matures in 15 years but the contribution has to be made for 16 years in all. Effectively, the PPF account matures in the first day of the 17th year. However, it can be extended indefinitely in chunks of 5 years
    • Premature closure is not permissible except in case of death of the account holder or after completion of 5 years when the money is required for treatment of a critical illness or to fund higher education
    • Loan against it can be taken from the third year onwards and withdrawals are permitted from seventh year onwards



  • @kvijay12345 PPF interest rate has been increased after a very long time. I was really worried looking at the falling PPF interest rate since past 1-2 years. At least a sigh of relief! I invest a small amount regularly in PPF scheme since I don't want to take any risk with my money.
    But, when the rate decreased to just 7.6% in previous quarter, I was tense, my savings will not give expected returns. I remember PPF interest rate used to be above 8.5% in 2012-13 or may be even higher.
    Hope the interest rate on PPF further increases and adds some more value to our savings.



  • Yes it is 8% from October 1st to 31st December 2018.



  • You are right that LTCG will have adverse impact on the returns from ELSS.
    But in my view, if you deposit Rs1.5 lacs in fin year 2018-2019, and withdraw it after locking period of 3 years, with positive expectations of 15% your amount 3 years would be approx Rs2.3lacs, i.e 80,000 if market goes up and gave you such return.
    For one thing, the returns only from ELSS wont be taxable as its less than 1 lac and even if you are redeeming other mutual fund investments in same financial year, the effective tax is less than what you have saved through investments.
    So I still say ELSS is quite good.



  • The decision to revise interest rates every quarter is quite useful in case of increase and decrease in interest rate.
    It will reflect inflation and interest changes by RBI in better way.



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