What is the Public Provident Fund (PPF) Scheme?

The Public Provident Fund (PPF) Scheme, 1968 is a tax-free savings avenue that was introduced by the Ministry of Finance (MoF) in India in the year 1968. Interest earned on deposits in the PPF account are not taxable. Deposits made towards PPF accounts can be claimed as tax deductions. This makes the PPF Scheme one of the most tax efficient instruments in India. It was launched to encourage savings among Indians in general, especially to encourage them to create a retirement corpus.

Public Provident Fund (PPF) Accounts

People can deposit funds in PPF accounts (Public Provident Fund accounts) for a fixed period of time to earn returns on their savings. The current PPF interest rate the financial year 2015 - 2016 is 8.7% p.a. Since this scheme was launched to encourage savings across income classes, minimum deposit requirements are very low and affordable. They are also tax-free accounts, easily accessible, safe (being backed by the government) and simple to understand, making them a popular investment avenue for a large majority of individuals in India.

PPF accounts can be opened at any nationalised, authorised bank and authorised branches / post offices. PPF accounts can be opened at specific private banks as well. These accounts can be opened by filling out the required forms, submitting the relevant documents and depositing the minimum pay-in at such branches/offices that have been authorised for the same.

Interest rates are set and announced by the government of India. Interest is calculated for a financial year according to the rate announced for the said year i.e. unlike bank FDs the rates are not fixed for the entire tenure of the holding. The maximum amount that can be deposited in the account is also subject to change.

The period from April 1st - March 31st i.e. a financial year is considered to be a deposit year for a PPF account. E.g. for an account opened in November 2010 - 2011, Year 1 will be April 1st 2011 - March 31st 2012.

Key features of the PPF scheme

The main things to note about PPF accounts are outlined below.

·         Interest rates: Interest rates are announced by the central government periodically, usually annually. Interest earned is compounded yearly. (The current rate of interest on a PPF account is fixed at 8.7% p.a.)

·         Tenure: 15 years; account continuance is allowed beyond maturity for 5 years at every renewal, with or without making additional deposits.

·         Initial investment/deposit: Rs.100 to open the account

·         Annual Deposit amount: Rs.500 - Rs.1.5 lakhs per year (can be revised as per government directive)

·         Deposit frequency: A deposit has to be made every year, for 15 years, to keep the account active. Failure to make the minimum annual investment will render the account inactive.

·         Deposit modes: Via cash, cheque,PO, DD, online funds transfer; as a one-time deposit or up to 12 installments.

·         Withdrawals: Partial premature withdrawals can be made every year from year 7; withdrawals are subject to conditions. Complete withdrawal of funds can be made only at maturity.

·         Tax advantages: Interests are tax-free and deposited amounts are tax deductible U/S 80C of the Income Tax Act. Withdrawals are exempt from wealth tax.

·         Nomination: Allowed; on opening the account or after.

·         Fund transfer: Funds/accounts cannot be transferred between people but can be easily transferred between bank branches or post offices for free.

·         Loan facility: Loans can be availed against funds held in the PPF account from year 3 to year 6.

·         Renewal: Renewal or extension of the scheme is allowed, for an extra 5 years at a time.

·         Joint accounts: Not allowed.

Benefits of Investing in a PPF scheme

Some of the key advantages of PPF accounts are stated below.

·         Attractive long-term investments: With a deposit period of 15 years and a lock-in period of 7 years, these accounts serve long-term investment goals. With interest rates compounded annually, effective returns tend to be more attractive vis-a-vis bank FDs.

·         Useful for retirement planning: Long-tenures, compounded, tax-free returns and capital protection make this an ideal option for building a retirement corpus.

·         Tax-free returns: Tax-free interest and withdrawals and tax-deductible investments.

·         Low-risk: Being government-backed, there is low risk of default.

·         Easily accessible: PPF accounts can be opened at nationalised, public banks or post offices and select private banks, all of which have wide reach. Accounts can be opened online as well.

·         No attachment: PPF funds can’t be attached under court order or laid claim to by creditors.

PPF Scheme Account Rules and Regulations

There are a number of rules and regulations governing the Public Provident Fund Scheme, 1968. These pertain to eligibility and documentation requirements, opening, maintenance and operation of a PPF account including loan facilities, withdrawals, closure and extension of accounts, among other things. Key rules have been discussed in detail below.

Eligibility - Who can open a PPF account?

·         Only one PPF account can be opened per person. Resident Indians, 18 years or older, can open a Public Provident Fund Account. There is no upper age limit for opening this account.

·         Accounts can be opened for minors. Minors are those below the age of 18 years. However, the maximum limit of Rs.1.5 lakhs per year applies to deposits made in the minor and the major’s/guardian’s account, collectively. Grandparents cannot open an account in the names of their minor grandchildren.

·         Non-resident Indians (NRIs) cannot open a PPF account. However, account-holders who leave the country and obtain non-resident status after having opened a PPF account can continue to maintain their accounts until it matures i.e. until the end of the account’s 15 year term. NRIs are restricted from extending account tenures at maturity.

·         HUFs cannot open a PPF account, effective 2005. Those accounts opened by HUFs before May 13, 2005 can be continued until maturity without further extensions. An individual cannot open an account for an HUF (Hindu Undivided Family).

·         Foreigners cannot open a PPF account.

Documents needed to open a Public Provident Fund Account (PPF a/c)

Documents required to open a PPF account are KYC documents such as identity proof, address proof and signature proof. These commonly include the latest version of a person’s

·         Passport, PAN Card, Aadhar Card, Driving License, Voter’s ID, Employer’s letter, Utility Bill, Rental/Lease Agreement, Bank Account Statements, Ration Cards, Signed Cheque

·         Photographs

·         The account opening form, along with nomination form if nominees are being named.

This is not an exhaustive list. Banks may request additional documents if necessary.

·         In case of minors, age proof will be required i.e. the minor’s birth certificate or school certificate.

Opening a PPF account

PPF accounts can be opened either by visiting a post office or bank-branch or online via internet banking. Operating accounts online is gaining increasing popularity among the masses owing to the convenience it offers. An account can be opened for Rs.100 but the total deposit for the year should be a minimum of Rs.500.

·         At a post office or bank

Accounts can be opened by visiting a post office or branch of a bank that has been authorised for this purpose. The required forms can be obtained, filled in and submitted along with the required documents (mentioned above). An initial deposit has to be made to open the account. Banks and post offices act as agents for the government under whose purview the PPF scheme falls.

·         Online

Accounts can also be opened online by visiting a bank’s official website or through third-party financial services providers’ sites that provide such services. Opening accounts online with a bank is primarily subject to the terms and conditions laid down by the bank. By opening an account online, users save time, effort and travel costs. Many banks offer additional facilities such as linking savings accounts, viewing online account statements and online fund transfers.

Traditionally, accounts were opened primarily through post offices but with online banking gaining popularity, more investors are opting to open accounts with banks which try to woo customers with value added services such as instant account balances and mobile updates.

Banks authorised to open PPF accounts in India

PPF accounts can be opened in authorised banks and authorised bank-branches only. Although an account is held at a bank’s branch, it is still a government-run scheme. Fund rules apply irrespective of where the account is held. PPF account transfers can be effected between bank-branches.

A list of banks 2015 (public and private sector banks) where PPF accounts can be opened

Alternatively, authorised branches are listed on every bank’s website or are made available at your nearest branch.

Public sector banks

Private sector banks

State Bank of India PPF State Bank of Travancore PPF State Bank of Hyderabad PPF State Bank of Mysore PPF State Bank of Bikaner and Jaipur PPF State Bank of Patiala PPF Allahabad Bank PPF Bank of Baroda PPF Bank of India PPF Bank of Maharashtra PPF Canara Bank PPF Central Bank of India PPF Corporation Bank PPF Dena Bank PPF IDBI Bank PPF Indian Overseas Bank PPF Oriental Bank of Commerce PPF Punjab National Bank PPF Union Bank of India PPF United Bank of India PPF Andhra Bank PPF Vijaya Bank PPF Punjab and Sind Bank PPF UCO Bank PPF

ICICI Bank Axis Bank

Public Provident Fund (PPF) Forms

There are various forms pertaining to PPF accounts. They are Forms A to H, each of which are issued for a specific purpose.

·         Form A - To open a Public Provident Fund Account (PPF Account)

This is the form issued to those opening a new PPF account. It will require key particulars of the account holder such as name, address, PAN card and signature to be filled in. The amount being deposited will also have to be specified. In case of minors, particulars such as the minor’s name, guardian’s name and relationship with the applicant will be required. If the account is being opened by an agent, the agent’s name will have to be filled in.

·         Form B - To make deposits into / repay loans taken against a PPF account

This is used to deposit or pay money into an account. These deposits or pay-ins may be investments, repayments for a loan taken against the account or payment of penalties to reactivate an inactive account. Investments have to be made every year to keep the account active. Loans can be availed from year 3 to year 6, counted from the year of account opening. Amounts can be deposited via cash, cheque, PO, DD or internet banking. This has to be specified in the pay-in slip. In case accounts are opened and deposits made through an agent, the agent’s name and code has to be entered in the form.

·         Form C - To make partial withdrawals from a PPF account

Certain sums of money can be withdrawn from the account from year 7 of opening the account. This form is an application to withdraw such amounts. The form requires the applicant to fill in the account number and the amount to be withdrawn as well as a declaration stating no other amounts were withdrawn during the same financial year.

·         Form D - To request a loan against a PPF account

Account holders can utilise the loan facility provided under the scheme from year 3 to year 6 of an active account. Details to be specified are the PPF account number, the amount being borrowed and an undertaking that the amount will be repaid with interest within 3 years as per the rules.

·         Form E - To add a nominee to a PPF account

More than one person can be nominated for a single PPF account. The names of such persons, along with their addresses and relation to the account holder has to be specified in the form. In case more than one nominee is stated, the percentage of funds that can be claimed by each nominee will have to also have to be specified. Nominations cannot be made for minors' PPF accounts.

·         Form F - To make changes to PPF account nomination information

This form is to be used to cancel or alter nominees for a particular PPF account. The account holder will have to specify when the nominee being cancelled/replaced/altered was named so. Nominees can be added, removed at any time during the PPF account tenure. The percentage allocated to each nominee can also be altered.

·         Form G - To claim funds in a PPF account by a nominee/legal heir

When an account holder dies, those whom he/she stated as nominees or his/her legal heirs, can claim the amount in his/her PPF account. To do so, Form G will have to be filled out with required details such as the name(s) of the nominee(s)/heir(s) of the account holder. The form asks for confirmation from the claimant that the death certificate of the account holder has been enclosed.

·         Form H - To extend the maturity period of a PPF account

The standard tenure for a PPF account is 15 years after which the investor can withdraw funds held therein, completely and freely. However, if a PPF account holder wishes to extend the term of the account beyond 15 years, he/she can do so for a further 5 years by submitting this form. The account number and date of account opening will have to be specified.

Interest rates for PPF Accounts

The Public Provident Fund Scheme is a fixed-income, debt investment offered by the government. It is the central government who sets and announces the latest PPF interest rates. The rate currently stands at 8.7% p.a. for the year 2015-2016

The table below represents PPF interest rates for the last 15 years.

Financial Year	Interest rate (p.a.)
2015 – 2016	8.7%
2014 - 2015	8.7%
2013 - 2014	8.7%
2012 - 2013	8.8%
2011 - 2012	8.6%
2010 - 2011	8.0%
2009 - 2010	8.0%
2008 - 2009	8.0%
2007 - 2008	8.0%
2006 - 2007	8.0%
2005 - 2006	8.0%
2004 - 2005	8.0%
2003 - 2004	8.0%
2002 - 2003	9.0%
2001 - 2002	9.5%
2000 - 2001	11.0%

Interest is compounded annually and credited at the end of every financial year. Interest is calculated as per the rate announced for a particular financial year i.e. the rate does not remain fixed for the entire tenure. E.g. Considering the table above, if the account was opened in the year 2011 - 2012, interest would have been calculated @ 8.6% p.a. for the first year, @ 8.8% p.a. for the second year (2012 - 2013), @ 8.7% p..a for the third, fourth and fifth year (2013 - 2014, 2014 - 2015, 2015 - 2016).

Amounts deposited into the account before the 5th of a particular month are considered for calculations. Thus, deposits should ideally be made from the 1st to the 5th of any month in order to maximise returns. E.g. if an account shows a balance of Rs.1,00,000 on Sept. 1st and a deposit of Rs.50,000 is made on Sept. 7th, interest will be calculated on Rs.1,00,000 for the month of September not Rs.1,50,000.

Interest earned on amounts held in PPF accounts are tax-free, which acts as a major draw for investors looking to maximise returns. The interest rate has, over the past decade, been within the 8% p.a. mark. With no major fluctuations in rates, it is a fairly stable option for risk-averse investors.

Compounding serves to make PPF rates of interest more attractive. The earlier people invest and stay invested in this scheme, the more they stand to earn at maturity. A rise in interest rates, coupled with the raising of the deposit ceiling over the years, has enhanced returns to depositors.

Factors affecting PPF interest rates

PPF account interest rates are ascertained by the government of India based on prevalent economic conditions, It is usually set in line with or above inflation rates at a premium of a quarter or half percent (0.25% to 0.50%) on rates of 10 year-government bonds.

Minimum and Maximum PPF Deposits

The minimum deposit required to be made every year is Rs.500. The maximum that a person can deposit in a year is currently Rs.1.5 lakhs.

Failure to make an annual deposit, in any year, will lead to inactivation of the account. Deposits can be made in a lump sum i.e. the entire amount to be invested can be paid-into the account at one time, or it can be spread over 12 installments in a year or spread over up to 2 installments a month.

(The government can, if it sees fit, change PPF deposit limits. Even as it increased the ceiling from Rs.1 lakh to Rs.1.5 lakhs in Aug. 2014, provisions were put in place, for those who wished, to invest an additional Rs.50,000 to meet the new investment limit by the end of FY15).

Defaults, Inactivation and Reactivation of PPF accounts

Money has to be deposited every year to keep a PPF account active. At the very least, the minimum requirement of Rs.500 should be met. If this isn’t done for any financial year, during the 15-account’s year tenure, the account is deemed inactive.

To reactivate the account, an account holder has to pay a penalty of Rs.50. The penalty applies for each year the account has been inactive. For e.g. if an account holder failed to make the minimum investment in year 3, year 4 and year 5 , the account is deemed inactive in year 3. It retains its inactive status for year 4 and 5 and it would have remained inactive except he decides to reactivate it in year 6. To revive his inactive PPF account, he/she will have to pay Rs.50 for the 3 inactive years i.e. Rs.150. In addition, he/she will have to deposit an amount equal, at least, to the minimum investment for each year i.e. Rs.500 * 3 = Rs.1,500 and Rs.500 for year 6 i.e. Rs.1,500 + Rs.500 = Rs.2,000.

Loan and withdrawal facilities cannot be availed while a PPF account is inactive. Also, interest will not be earned during the year(s) the account is inactive.

Withdrawals or closure of a PPF account

PPF accounts cannot be closed before maturity i.e. before the end of year 15. Even if an account becomes inactive, funds accrued therein cannot be withdrawn until the end of the 15 year. On completing 15 years, the entire amount held in the account, along with the interest accrued, can be withdrawn freely and the account can be closed.

However, if account holders are in need of funds, the scheme permits partial withdrawals from year 7 i.e. on completing 6 years. The amount that can be withdrawn is capped as the lower of

·         50% of the total balance at the end of the fourth year, counting back from the year of withdrawal OR

·         50% of the total balance at the end of the year before the year of withdrawal Withdrawals can be made only once in a financial year.

Extension or renewal of PPF accounts (Maturity Options)

Although accounts mature at the end of the 15th financial year from the year the account is opened, account holders can choose to extend the tenure. Tenures can be extended in 5-year blocks with or without making further investments.

·         If no fresh investments are made after maturity, the account can continue earning interest on the amount accrued in the account until the end of year 15. Also, in this case, funds can be withdrawn freely once every financial year.

·         If fresh investments are made after maturity, the new deposits will be added to the balance held at the end of year 15 and interest will be calculated on the entire amount. However, in this case, withdrawals will be restricted to a maximum of 60% of the amount held in the account at the start of each 5-year period of extension.

Tax advantages of investing in the PPF scheme

Tax benefits available on these accounts make these investment options very attractive, especially for those using this scheme to build a retirement corpus.

·         PPF deposits fall under the EEE (Exempt, Exempt, Exempt) tax category.

·         Deposits made under this scheme can be claimed as deductions under section 80C.

·         Interest earned on these deposits are not taxable.

·         Amounts withdrawn from the account are exempt from wealth tax.

·         Amounts deposited in a spouse’s or child’s PPF account also qualify for tax breaks.

PPF Calculator

A PPF calculator is an online financial tool offered for free. It is usually featured on a bank’s/post office’s website or on third-party financial services provider sites. It is useful to those investing under the PPF scheme.

·         It helps account holders or potential depositors calculate interest on PPF deposits and maturity amounts. It also helps ascertain the investment required for certain desired returns. It delivers results in a user-friendly manner often in the form of charts or tables which clearly indicates how much has accrued in the account as principal, how much has accrued as interest, and how much to expect on maturity.

·         It helps users ascertain how much they stand to gain if they choose to extend their maturity period; under both circumstances i.e. with or without additional deposits.

·         In the case of PPF loans, loan repayments and withdrawals, the PPF deposit calculator is a handy tool to make quick calculations to arrive at the latest account balances after accounting for all debits. With accurate results, PPF accounts as an investment can be tracked and compared with other instruments like other post office saving schemes, FDs, RDs, Mutual Funds etc. to check returns and make informed investment choices.

·         Given that investments can be made either in a lump sum or in installments, calculations can get tedious and confusing when the latter is chosen. Also, considering interest rates are subject to change every year, balances will have to be carefully calculated to account for rise or falling rates. Deposit calculators can help with this.

·         There are also limitations to borrowing and withdrawing from a PPF account. PPF calculators help account holders determine how much they can borrow or withdraw based on these limitations.

FAQs about PPF Accounts

1.    Can I increase my investment under the PPF scheme by opening 2 or more accounts in my name?

No. Under the Public Provident Fund Scheme, a person can hold and operate only one account in his/her name.

2.    Can I continue to use an inactive account?

Yes. You can do so by paying the holding branch a penalty of Rs.50 for every year the account was inactive. You will also have to deposit a minimum of Rs.500 for every year the account was inactive as well as Rs.500 for the year you are activating the account.

3.    Will I continue to earn returns if my account is inactive?

No. Interest will not be calculated for the year(s) the account is inactive. Once the account is revived, interest will be calculated on the balance held at time of revival.

4.    If I open a PPF account in my minor child’s name, can I claim tax deductions from both accounts i.e. my child’s and mine, when I file taxes?

The maximum investment cap of Rs.1.5 lakhs applies to all contributions you make to your account, your minor child’s account and/or your spouse’s account, collectively. Only amounts up to Rs.1.5 lakhs can be claimed as deduction U/S 80C of the Income Tax Act. For e.g. if you contribute Rs.1 lakh toward your account and Rs.1 lakh toward your child’s account, you can claim only Rs.1.5 lakhs as deduction and not Rs.2 lakhs.

5.    What if I wish to invest more money than the Rs.1.5 lakh limit?

Interest will be calculated and paid out only on amounts up to Rs.1.5 lakhs for any year. Only the maximum annual investment limit i.e. Rs.1.5 lakhs a year will be considered towards all calculations for all purposes.

6.    The limit was raised from Rs.1 lakh to Rs. 1.5 lakh mid-way through 2014. If the limit is raised this year in the same way, how will I make the additional deposit? Should I wait for next year?

When the limit is raised during a financial year, banks and post offices are instructed to accept additional investments if investors wish to contribute up to the revised maximum limit. This is what was done last year for those who wished to contribute up to Rs.1.5 lakhs under the revised limit.

7.    How is interest calculated? I got interest for 11 months instead of 12 months for the last year.

For any given month, investments made on or before the 5th will be considered for interest calculations for that month. Interest is calculated on the lower of the balance held on the 5th of a month to the end of the month.

For e.g. An account held Rs.1 lakh at the start of September. The account holder decided to invest Rs.50,000. He did so on September 10th. In this case, the balance on the 5th of September was Rs.1 lakh and was Rs.1.5 lakhs at month-end. Here, Rs.1 lakh is the amount that will be considered for calculation of interest. The additional investment of Rs.50,000 would be considered for the month of October.

If, however, the account holder had deposited the additional Rs.50,000 on September 3rd, the balance on the 5th of September would have been Rs.1.5 lakhs. This would have been the amount considered for interest calculations for the month of September.

8.    I want to leave some money to my grandchild. Can I open the PPF account on her behalf?

No. Grandparents cannot open PPF accounts in their grandchildren’s names. The amount can be given to the parent/guardian who can open and operate the account in the name of their minor child/ward. However, if both parents of the minor child die, the grandparents, as guardians, can open and operate a PPF account for the minor child.

9.    Is it mandatory to withdraw all the money in my PF account at the end of 15 years?

No. It is not necessary to redeem all the funds held in the account at maturity. The account term can be continued or extended for as long as the investor wishes to operate it. The account can be continued for 5 years per extension. Extensions can be done by depositing fresh funds or without making any further deposits.

10.  Will I continue to earn interest on my account if I extend the maturity period beyond 15 years?

Yes. Interest will be calculated and paid out based on the interest rates prevailing during the period of extension. If no fresh deposits are made during the period of extension, interest will be calculated based on the balance held at the end of the 15th year. If fresh deposits are made to extend the term, it will be added to the balance at the end of the 15th year and the total amount will be treated as principal for interest calculations.

11.  Can I extend my account for 2 years on maturity?

Extensions can be made in blocks of 5 years each.

12.  What happens to the money in my account if I die before maturity?

It can be claimed by the nominees or the legal heirs in the absence of nominees. If a nominee was named by the account holder, he/she will receive the entire amount held in the account. If more than one nominee was named, the nominees will receive funds held in the account proportionately i.e. as stated by the account holder in the nomination form.

13.  Is it necessary to name nominees?

It is not mandatory to name nominees for a PPF account. However, it is advisable to do so to avoid conflicts in the event of death and to have a clear transfer of funds to a desired person.

14.  How can a nominee/legal heir claim funds in a PPF account?

Nominees or legal heirs can claim funds in a PPF account when the account holder has passed away. They will be required to produce proof of death of the account holder. Nominees can claim funds in the proportion stated by the account holder in the nomination form.

15.  How long can I extend my account for?

PPF accounts have a maturity period of 15 years. However, this can be extended for as long as the account holder wishes to continue it. Extensions can be done for 5 years at a time. For e.g. if an account matures on March 31st 2015, it can be extended till March 31st 2020. The next extension will be until March 31st 2025 and so on.

16.  I deposited money in my wife’s PPF account. Who can avail the tax deduction?

In this case it will be you who will be able to avail the tax deduction. The person making the contribution is eligible for tax deductions U/S 80C.

17.  I deposited money in my parents’ PPF accounts but did not qualify for tax deduction U/S 80C. Why?

Only contributions made to an account holder’s own account, his/her spouse’s account or his/her minor child’s account can be claimed as deductions U/S 80C of the Income Tax Act. The total contribution to any one or all of the abovementioned person’s account is subject to the investment cap of Rs.1.5 lakhs per annum.

18.  If I withdraw money from my PPF account, can I redeposit it to meet the minimum annual investment requirement?

Yes, you can withdraw money for personal purposes. It can be used to invest the Rs.500 required as annual investment.

19.  Can I open a PPF account along with my wife or child?

No. The option to hold PPF accounts jointly is not provided under the PPF scheme. A person can hold and operate only one account in his/her own name.

20.  If I need money, can I make withdrawals in addition to taking out a loan against my PPF account?

No, withdrawals and loans are exclusive of each other as per the rules of operating a PPF account. Loan facilities are extended to account holders only between the 3rd and 6th year of operating an active account whereas partial withdrawals are allowed from the 7th year onwards. This means you cannot avail a loan from the 7th year onwards nor can you make withdrawals before the 6th year.

This scheme was devised to promote savings and while loans and withdrawals are allowed to a certain extent to allow for some liquidity, the scheme, in general, does not aim to encourage a reduction in savings potential.