Public Provident Fund (PPF)

A Public Provident Fund is an investment scheme introduced by the National Saving Organisation under the Public Provident Fund Act 1968 to promote small savings and investments. PPF is a 15-year deposit account that can be opened with a designated bank or a post office. The primary objective of the PPF is to provide a long-term retirement planning option to those who may not be covered by the provident funds from their employees or for people who are self-employed.

The minimum amount that one need to deposit into this account is rupees 500 per annum, and the maximum limit per annum is rupees 1.5 lakh. The subscription should be in multiples of five and can be paid in instalments or a lump sum. A penalty may apply if the minimum deposit is not made in a financial year.

Benefits of Opening a PPF Account

PPF account offers multiple benefits. The investment made under public provident fund account is the safest option as the government of India backs it. The deposits in public provident fund account qualifies for tax deductions, and you can also get a loan against your public provident fund account. Let us discuss each of the benefit of PPF account in detail.

Interest rates

Currently, public provident fund account provides 8 percent interest rate on savings which is compounded annually. The percentage of interest is calculated and announced by the government of India for a particular financial year.

Long term investment

PPF is a long-term investment for 15 years with a lock-in period of 5 years, and it promotes long-term saving goals. Individuals can also use these savings as a retirement fund. The interest rates are compounded annually. Therefore, the returns are usually higher in PPF rather than Fixed deposits.

Tax deduction

The amount invested, the interest earned and the amount received at the time of maturity are exempted from the tax under Section 80C of The Income Tax Act.

Loan against PPF balance

You need not have to go for a personal loan with a high rate of interest as you can avail a loan facility with a public provident fund account.

Withdrawal facility

A public provident fund account holder can withdraw prematurely up to 50% of the balance amount at the end of 4th year. This lock-in period helps to impart regular saving habits that help you to earn in high returns.

Extension of a PPF account

A public provident fund account can be continued even after maturity with a lock-in period of five years with or without making further contributions. However partial withdrawals are allowed even during the extended period.

Steps to Open a PPF Account

A public provident fund account can be opened in designated nationalised and authorized bank branches. The banks where you can open a public provident fund account include HDFC Bank, Central Bank of India, SBI, ICICI Bank, Axis Bank, Bank of India, Punjab National Bank, Indian Overseas Bank, IDBI, and a few other banks.

  • Step 1: You need to submit the following documents that are mandatory to open a public provident fund account. 1) public provident fund account opening form that you can get from the bank or the post office.

2) Identity proof may include PAN card, Aadhar card, Driving license, Voter Id card or passport.

For online application, the procedure is separate for different banks; however, the necessary documentation remains the same.

  • Step 2: You need to submit the address proof along with the above documents. The address proof can be anything including Telephone bill, Electricity bill, Aadhar car or Ration card.

  • Step 3: Submit 2 current passport size photographs.

  • Step 4: Submit the pay-in-slip to the bank to transfer the subscription amount to your public provident fund account, or you can also issue a signed cheque in favour of your public provident fund account.

In case of minor public provident fund account, a birth certificate may also be required as age proof.

It is advisable to present all the original documents while opening a public provident fund account along with the self-attested photocopies.

Eligibility for Opening a PPF account

  1. Indian residents above 18 years of age are eligible to open the public provident fund account.
  2. An individual can open only one public provident fund account.
  3. NRIs who had opened public provident fund account when they were Indian residents, can continue to operate their public provident fund account till maturity that is 15 years. They do not have a facility to extend the period.
  4. Minors can open public provident fund account under one guardian.
  5. HUFs cannot open public provident fund accounts. All accounts opened before 13 May 2005, can be operated till the maturity of 15 years with no extension benefits.

Interest Rates for PPF Accounts

As of now, the PPF interest rate is 8% per annum which is compounded annually. The interest rates on different small saving schemes including PPF is announced on a quarterly basis. The PPF interest rate is the same for every bank. In past years, the interest on PPF was gradually gone down. However, it is still higher than that of fixed deposits.

The following table presents the interest rates set by the government of India for PPF account in recent years.

Financial year Interest rate per annum
2018-2019 0.8%
2017-2018 7.8%
2016-2017 0.8%
2015-2016 8.7%
2014-2015 8.7%

Transfer of PPF Account

On the request of accountholder, the PPF account can be transferred to any other bank or branch or post office for free of charge. The account holder needs to follow the below-listed steps to transfer the public provident fund account.

  • Step 1: Approach the post office or the bank branch where the public provident fund account is currently held. Request for the necessary form to be filled.
  • Step 2: The existing bank or post office will forward the certified copy of the public provident fund account, the account opening application, a nomination form, and cheque or dd for the outstanding balance in the public provident fund account to the new branch or new bank/post office.
  • Step 3: Once the new bank/post office receives the documents, you need to submit the new account opening form along with the old public provident fund account passbook.
  • Step 4: It may take a couple of days/weeks to reflect a new public provident fund account under the public provident fund account tab or link in the log-in of your internet banking of new bank.

How to Open PPF Account for a Minor

A parent can open a public provident fund account of a minor. It is important to note that both the parents cannot open a sperate public provident fund account for the same child. A birth certificate of a child is mandatory as the proof of age. A parent can open a public provident fund account by assigning him/herself as a guardian. Only parents of the child can open a PPF account on their behalf and not grandparents when the parents are still alive.

Pre-mature closure of PPF Account

Pre-mature closure of PPF account is permitted before completion of 15 years for emergencies like medical treatment or funds needed for higher education of the account holder. However, a pre-mature closure comes with a penalty of 1% interest rate.

Tax Implications on a PPF Account

PPF account is seen more as a saving instrument than an investment vehicle. Tax exemptions on public provident fund account make it more attractive to people especially for those who are building a retirement corpus through public provident fund account.

public provident fund account falls under (EEE) Exempt, Exempt, Exempt tax category. The deposits made under the PPF scheme are exempted from tax under section 80C of The Income Tax Act, 1961. The returns earned under this scheme is not taxable. Additionally, the amount withdrawn on or before maturity is fully exempted from the tax.

Inactivation and Reactivation of PPF Account

It is mandatory to pay a minimum of rupees 500 each year in order to keep your public provident fund account active. If the deposit is not paid within the financial year, then the PPF account is deemed inactive.

To reactivate your public provident fund account, you need to pay a penalty of rupees 50 per year and the sum of minimum amount for each year from the year of account inactivation.

You need to submit a written request to the bank branch or at the post office where the account is based. On completing the formalities, you can get your account activated. You can also reactivate your account once it is matured by submitting the reactivation form. The proceeds of your public provident fund account will be blocked until your account is being revived.

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FAQs on Public Provident Fund (PPF)

Can I close my PPF account before maturity?

You can close your PPF account before maturity and withdraw an entire amount under certain circumstances.

Can I deposit money in my PPF account online?

Yes. Banks allow the customers to deposit their cash in PPF account through internet banking.

Can I take a loan from PPF account?

Yes. You can avail a loan against PPF account till the end of five years from the end of fiscal years in which the account was opened.

Can I transfer money to PPF account online from other banks?

Yes, you can transfer money to PPF account online from other banks.

Can I withdraw money from PPF account after five years?

Yes, you can withdraw money from PPF account anytime after five years.

Can I withdraw money from PPF account?

As per PPF account rules, you can withdraw up to 50% of the accumulated amount by the 5th year of the investment made.

Can we close PPF account after maturity?

Yes, you can close the PPF account after maturity. Besides, you also have an option to extend your PPF account for a block period of five years.

Can we deposit cash in PPF account?

Yes, it is possible to deposit cash in your PPF account. To do so, you need to fill up form B which is easily available at a post office or the banks. You need to mention the details such as your name, address, PPF account number, etc. Once you pay the cash, you can get your PPF passbook updated for the same.

Can we deposit more than 1.5 lakh in PPF?

The maximum amount that you can deposit in a PPF account is rupees 1.5 lakh per annum. The excess amount over 1.5 lakhs is not eligible to earn interest.

Can we withdraw money from EPF account?

The money cannot be withdrawn from the EPF account during the employment. You can withdraw the funds only after retirement.

How can I check my PPF balance?

You can check your PPF account balance online through the net banking facility of the bank from which you have opened a PPF account. Also, you can check your PPF balance offline at the post office.

How can I get maximum PPF benefit?

There are a few ways through which you can avail maximum PPF benefits. Open a PPF account as early as possible. Invest in a lump sum plus schedule monthly investments. Open account in the start of a financial year. Deposit monthly investment at the beginning of every month. Choose the bank that provides the facility of online fund transfer. Consider taking a loan from PPF account instead of a personal loan.

How can I withdraw my PPF after maturity?

You can withdraw your PPF amount on maturity and close the account or continue the existing account for five years blocking period.

How do I start a PPF account?

You can open an account in selected nationalised banks or the post office. Fill in the account opening form, attach a photograph, mention your PAN number and you are done.

How does a PPF account work?

PPF account is a long-term investment option with a maturity period of 15 years. You can invest as low as rupees 500 and up to 1.5 lakh a year. You can get tax exemption for your investment amount under section 80C of The Income Tax Act, 1961.

How many PPF accounts can a person have?

An individual can have one PPF account. Both husband and wife can have two separate PPF accounts. Either of the two can open a PPF account as a guardian of their minor child.

How many times can PPF be withdrawn?

A PPF account holder can withdraw only 50% of the accumulated amount from the 5th year of investment. Where the account holder has invested the funds between 7 and 12 years, the withdrawal limit is higher.

How is PPF interest calculated?

The interest on the balance of PPF account is calculated monthly and compounded annually. The interest is calculated on the lowest balances in your account between 5th and last day of the month.

Is PPF good?

Yes. It is a good saving option instead of an investment option.

Is PPF interest rate fixed?

The PPF interest rate is fixed at 8% a year.

Is PPF interest rate same for all banks?

Yes. The PPF interest rate is the same for all banks.

Is PPF interest tax-free?

The PPF falls under the tax-free basket. The maximum tax benefit is1.5 lakh per annum.

Is PPF safe?

PPF is safe and a long-term saving option backed by the government of India.

Is PPF taxable on maturity?

PPF is tax-free on maturity.

Is PPF Taxable?

The contribution made, interest earned and maturity proceeds are exempted from income tax.

Is PPF withdrawal taxable?

Both the deposits and withdrawals are tax-free under PPF.

What happens if PPF account holder dies?

In the event of the death of the account holder, the nominee will be paid the balance amount. In such case, the nominee is not allowed to continue the PPF by making new contributions.

What is the difference between EPF and PPF?

EPF (Employee Provident Fund) is deducted from the salary of employed individuals and PPF is invested by any citizen whether they are employed, not employed or self-employed. PPF is offered by banks and post offices whereas, EPF is being provided by Employees’ Provident Funds Organisation (EPFO). They both are tax-free.

What is the interest rate of PPF in SBI?

Interest rate of PPF in SBI is currently 8%.

What is PPF account and its benefits?

PPF is a 15-year deposit account that can be opened with a designated bank or a post office. PPF comes with numerous benefits such as attractive interest rate, Tax exemption, and Loan against PPF account.

What is a PPF account in SBI?

One of the largest lenders in India SBI allows people to open a PPF account. Such account is known as PPF account in SBI.

What is the best time to deposit money in PPF account?

PPF accounts follow financial year starting from April month. It is advisable to deposit the amount on or before 5th of April to earn the maximum interest.

What is the current rate of interest on PPF?

Currently, the PPF interest rate is 8% effective from January 2019.

What is the minimum lock-in period for PPF account?

Minimum lock-in period for PPF account is fifteen years. However, you have an option wherein you can withdraw the funds in the 6th year.

Which is the best bank to open a PPF account?

Where most of the banks are providing PPF facilities, SBI, Punjab National bank, Bank of Baroda, and ICICI are good options to open PPF accounts.