Everything You Need To Know About PPF

Public Provident Fund (PPF) is one of the most well known long haul sparing schemes which focuses on instigating little savings as investments and accrue returns on the same. As a sparing scheme by the government, PPF gives an agreeable rate of interest and returns on investments. This scheme tends to serve as a prerequisite for money related requirements at the time of retirement. It has a tenure of 15 years which, however, can be extended by 5 years on application by the subscriber. Fractional withdrawal is likewise allowed in some cases.

PPF is a fixed income investment. The interest rate on PPF account is notified by the central government every quarter.

Interest on PPF is calculated month to month on the lowest balance between the close of the fifth day and the most recent day of every month, i.e. with the end goal of interest computation. However, the sum that is deposited into the account before fifth of the month is just considered. So on the off chance that any money is deposited on sixth of a month, then no interest will be paid on that sum in the respective month. Hence it is advised that deposits ought to be made between first and fifth of the month to maximize the returns.

Benefits of Public Provident Fund

• PPF Interest Rate Benefits

The rate of interest for PPF accounts is revised by the Central Government every quarter. The PPF interest rate has verifiably been around 7.6% to 8%. It tends to move marginally higher or lower depending on the overall economic scenarios.

The current PPF interest rate for April to June 2020 is 7.1 per cent, compounded yearly. As compared to the corresponding fixed deposit (FD) rates in numerous banks, Public Provident Fund gives higher interest benefits to its subscribers.

• Extension of Tenure

The scheme has a tenure of 15 years for the subscribers after which they can pull back the sum which comes under tax exemption. Be that as it may, the subscribers can apply for extension to get another 5 years of active investments. Furthermore, they can likewise choose whether they need to continue with the commitments or not.

• Tax Benefits on PPF

The Public Provident Fund provides tax benefits under Section 80C of the IT Act, 1961. It permits income tax deductions up to Rs.1.5 lakh on the sum invested in the scheme. PPF follows the EEE (Exempt-Exempt-Exempt) model of taxation which implies that the interest earned and the development sum both are exempted from taxes.

• Investment Security in PPF

Being a government backed sparing scheme, the subscribers enjoy safety of investments in Public Provident Funds. Generally, the people who are reluctant to take any dangers and benefit from a fixed rate of interest pick to invest in this fund. Moreover, the interest earned is backed by sovereign guarantee which additionally makes it safer than bank interest. In examination, bank fixed deposits are just insured up to Rs 1 lakh by the Deposit Insurance and Credit Guarantee Corporation (DICGC).

• Facility of Loans against PPF

The subscribers are allowed to take advances against their PPF account at an agreeable interest rate. The credit benefit can be availed from the third to the sixth year of account opening. It is especially beneficial for the investors who need to apply for transient advances without vowing any collateral securities.

The most extreme measure of credit that can be availed against PPF accounts is 25% of the balance toward the end of the second budgetary year preceding the year in which the advance was applied for.

The advance sum can be repaid in three years from the primary day of the month succeeding the month in which the credit was taken. For example: in the event that a credit is sanctioned on 25th March, 2020 then the tenure of repayment will begin from first April, 2020

For instance, if the investor wanted to take the credit in April 2020, the most extreme advance that can be availed is 25% of the balance as on March 31, 2019. The interest rate payable on credits taken against PPF accounts is 2% higher than the prevailing interest rate on PPF accounts. Suppose the prevailing interest rate of PPF account is 8%, then interest payable on an advance taken on such account would be 10%. This can be lower than the interest charged by several banks and you needn’t bother with any extra security.

• Incomplete Withdrawals

The PPF is a drawn out investment scheme with a lock-in period of 15 years. However, Partial withdrawals can be made from the seventh budgetary year after the year in which the account is opened. Example, if the account was opened on Jan 1, 2012 (FY 2012-13), withdrawal can be made from the money related year 2019-20 onwards. Be that as it may, it is suggested that one should check with the respective website of the bank to determine when fractional withdrawal is allowed. Some banks, for example, ICICI and Axis, permit withdrawals after 5 years and some after 7 years (SBI and HDFC).

Just a single incomplete withdrawal is allowed per monetary year. The most extreme sum that can be pulled back per money related year is the lower of following:

1. half of the account balance as toward the end of the money related year, preceding the current year, or
2. half of the account balance as toward the end of the fourth money related year, preceding the current year.

Form C ought to be submitted to pull back a halfway sum from the PPF account. Details, for example, account number, measure of money to be pulled back, etc. is to be mentioned on the form. A declaration expressing that no other sums were pulled back during the same money related year ought to likewise be submitted. In case, the account is in the name of the minor, extra declaration expressing that the sum is required for the use of a minor kid who is as yet a minor and is alive. Passbook is additionally required to be submitted alongside the form.

• PPF as a Pension Tool

PPF can be treated as a decent Pension scheme if a subscriber extends the scheme tenure without picking further commitments. Let us assume that you have Rs. 1 crore in your PPF account. The PPF interest rate is 7.1% per annum which implies that your account will earn Rs.8.5 lakh interest income in a year (tax exempted). Presently, you can pull back this interest income keeping the chief sum the same. Essentially, if the interest rate remains the same, you will be able to earn 8.5 lacs of interest (or you can say pension) per year.

To the extent the different pension plans or annuity items are concerned, the pension income is taxed by the income tax slab. Be that as it may, on account of PPF there is no tax to be paid. Thereby, it tends to be considered better than other pension schemes/plans.

• Transparency in Calculation

The PPF sum is compounded on a yearly premise as per the declared interest rates. This rate of interest is declared every quarter so the applicable rate for PPF benefits will be the weighted average of each rate. The sum your PPF account earns depends on the declared interest rate and when you have deposited money in the PPF.

For example, assume you have invested Rs 75,000 in the PPF account on fourth July 2018 and Rs 75,000 on fourth October 2018. The rate for April – June 2018 is 7.6% and the rate for October – December 2018 is 8%. Your PPF account will earn Rs 4,275 on your underlying investment of Rs 75,000 (7.6% for 9 months) and Rs 2,850 (8% for a half year) on your subsequent investment of Rs 75,000.

Few Disadvantages of PPF

• Fixed Interest Rate: PPF investments have a fixed interest rate which may not generally keep pace with swelling. In 2010 and 2011, expansion went into double digits yet the PPF interest rate remained at 8%.
• Lower returns than Mutual Funds, NPS: Mutual Funds and NPS have an equity component and hence have given higher returns than PPF in the long haul.
• Less flexible: PPF has restrictions on withdrawals. It permits withdrawals from the seventh monetary year after the year of account opening. Thereafter it just permits halfway withdrawals up to half of the balance in the PPF account. In terms of credits, there are comparable restrictions, for example, when it very well may be taken (third to sixth year from account opening) and how much (25% of the account balance in the second year preceding the year of account opening).

Eligibility Criteria

1. Any person who is a resident of India can just open a PPF account
2. NRIs are not eligible to open PPF accounts. However, a resident Indian who has become a NRI after opening a PPF account can continue the account till development
3. Moreover, parents/gatekeepers can likewise open PPF accounts for their minor children
4. Opening of joint accounts and multiple accounts are not allowed

Least and Maximum Contribution

The base yearly commitment that can be made to a PPF account is Rs. 500 while the greatest is capped at Rs. 1.5 lakh. As far as possible applies to commitments made by a person for himself and for a minor youngster, both. There can be a limit of 12 commitments in a year.

PPF Tenure

PPF account matures after the expiry of 15 years from the end of the budgetary year wherein the account was opened. For example, if the PPF account was opened on Jan 1, 2010, it will mature on March 31, 2025, i.e. 15 years from March 31, 2010. At development, you can extend the PPF account indefinitely in squares of 5 years one after another.

The most effective method to open a PPF account

PPF accounts can be opened at post offices, nationalized banks and major private banks, for example, ICICI and Axis Bank. In several banks like ICICI and Axis Bank, you can likewise open a PPF account online through net banking. Once the account is opened, a passbook like the bank passbook recording all transactions, for example, memberships, interest, withdrawals, etc. will be issued. However, some other banks basically permit PPF entries to be viewed online instead of giving a passbook.

Documents Required

PPF account opening (Form A) can be obtained from specified bank branches or can be downloaded online.

1. ID confirmation
2. Address verification
3. Photograph of the account holder
4. Nomination form

PPF Login and Registration Process

To open a PPF account online, you should follow the given steps:

1. You should have an account with the bank you are going to open your PPF account
2. Sign in to your net banking portal
3. Snap in the alternative that permits you to ‘Open a PPF Account’
4. Choose the relevant alternative between a ‘self account’ and a ‘minor account’
5. Enter the required information, for example, nominee details, bank details, etc.
6. Verify details like your Permanent Account Number (PAN), etc. that is appeared on the screen
7. After verifying the details, enter the sum that you wish to deposit in your PPF account
8. You will be asked to set up standing guidelines that enable the bank to deduct the sum at fixed intervals or in single amount
9. After you make your choice, you will receive an OTP on your registered mobile number
10. Once this verification is done, your PPF account gets opened. You are advised to save the account number that is displayed on the screen for future reference
11. Certain banks may even request that you present the printed version of the details entered alongside the reference number and submit it to the respective bank with your KYC details
12. It must be noted that each bank has a relatively different process for opening of PPF account. The general steps to be followed, however remain the same.

PPF Passbook

PPF is a fixed income investment made for a long haul; hence, EPFO permits you to follow your account balance. PPF Passbook gives all of you the details of the investments made in your PPF account.

PPF Balance Check

Here’s the means by which you can check your PPF balance online:

1. Before you begin, ensure that your net banking with your bank account is active
2. Sign in to your PPF account utilizing your internet banking credentials
3. Once you sign in, your current PPF account balance will be displayed on the screen
4. Signing in to your PPF account utilizing internet banking permits you to transfer funds to your PPF account online, set up standing guidelines for your PPF account, download your PPF account statement, present your PPF advance application. etc.

Nomination Rules

1. Nomination can be made for one or more person(s). In case, more than one person is appointed as a nominee, the percentage share of each nominee must be specified.
2. Nominations can’t be made for the minor’s PPF account.
3. Parent, spouse, relatives, children, friends, etc. of the account holder can be nominated.
4. Account holder must submit Form E so as to add a nominee to the PPF account.
5. Nomination can be made whenever during the tenure of account. Change, cancellation or alteration in nomination should be possible through Form F.
6. Nomination forms need to be signed by the account holder and two witnesses. Signature of the nominees isn’t required.
7. After being properly filled, the form must be submitted at the appropriate bank/post office branch.

Taxability and Exemption

Public Provident Fund falls under EEE (i.e. exempt-exempt-exempt) regime of taxation, i.e. Exempt-exempt-exempt. Commitment to PPF account (up to Rs 1.5 lakh per annum) is eligible for deduction under section 80C of Income Tax Act, interest earned is exempted and development proceeds are additionally exempted from tax. The interest earned on the PPF account must be mentioned on the income tax return.

Attachment Immunity

The PPF Account was earlier governed by the Public Provident Fund Act, 1968 which protected the PPF Account from attachment by any court. Budget 2018 repealed the PPF Act and brought the PPF Account under the Government Savings Banks Act, 1873. An amendment to the Finance Bill, 2018 added protection against attachment in the Government Savings Banks Act too. The PPF Account can’t be attached under any order or decree of any court for any debt or obligation under the Government Savings Banks Act, 1873. This protects account holders against all creditors, including the income tax department.

Credit Against PPF

The facility to profit advance against the PPF account is available from a third money related year up to sixth budgetary year from the date of opening the account. In another words, credit can be availed whenever after the expiry of one year from the end of the budgetary year where the account was opened yet before the expiry of five years from the end of the monetary year wherein the account was opened.

For example, if the PF account is opened on Jan 1, 2012 (FY 2011-12), the end of the money related year in which the account was opened is Mar 31, 2012. The advance can be taken from first April, 2013 (FY 2013 – 14) onwards. Five years from the end of the money related year in which account was opened is March 31, 2018 (FY 2017 – 18). Accordingly, the advance can be obtained from Mar 31, 2013 to Mar 31, 2018. The greatest tenure of such an advance is three years

Form D must be submitted to benefit advance against the PPF account. Form requires details, for example, account number, sum being borrowed, etc alongside the undertaking that the sum will be repaid with interest within three years.

The most extreme measure of advance that can be availed against PPF accounts is 25% of the balance toward the end of the second money related year preceding the year in which the credit was applied for. In the above example, if the investor needs to take the advance in April 2013, the most extreme credit that can be availed is 25% of the balance as on Mar 31, 2012.

The interest rate payable on credit taken against PPF account is 2% higher than the prevailing interest rate on PPF account. For example, in the event that the prevailing interest rate of PPF account is 8%, then interest payable on credit taken on such account would be 10%. Preceding Nov 30, 2011, this rate was 1% higher than the prevailing interest rate on PPF account. Hence, in case of advances taken before the said date, the interest charged would be 1% above the prevailing rate of PPF account.

The interest isn’t paid with the chief sum in EMIs. Once the chief sum is completely repaid the interest must be repaid within 2 months. In case the advance isn’t repaid within three years, interest at 6% more than the prevailing interest rate of PPF account is charged. The second advance can be obtained simply after the closure of the principal advance.

Revival of Inactive Account

The PPF Account becomes inactive if the base commitment of Rs 500 per year isn’t made:

1. A written request to reactivate the account ought to be submitted at the mail station or the bank branch where the account is based
2. A fine of INR 50 for each year the account has been inactive must be paid.
3. Arrears of least measure of INR 500 for all the years the account has been inactive have to be paid.

PPF Transfer

The PPF account can be transferred from bank to post office or vice versa. It can likewise be transferred between different branches of the same bank.

PPF Withdrawal

Halfway withdrawals from the PPF account can be made from the seventh Financial year from the year in which the account is opened. For example, if the account was opened on Jan 1, 2012, withdrawal can be made from the monetary year 2018-19 onwards. However, it is suggested that one should check with the respective website of the bank to determine when incomplete withdrawal is allowed. Some banks, for example, ICICI and Axis, permit withdrawals after 5 years and some after 7 years (SBI and HDFC). Just a single halfway withdrawal is allowed per money related year. The greatest sum that can be pulled back per monetary year is the lower of the accompanying :

1. half of the account balance as toward the end of the budgetary year, preceding the current year, or
2. half of the account balance as toward the end of the sixth monetary year, preceding the current year.

Form C ought to be submitted to pull back halfway sum from the PPF account. Details, for example, account number, measure of money to be pulled back, etc. is to be mentioned on the form. A declaration expressing that no other sums were pulled back during the same budgetary year ought to likewise be submitted. In case, the account is in the name of the minor, extra declaration expressing that the sum is required for the use of minor kid who is as yet a minor and is alive. Passbook is additionally required to be submitted alongside the form.

Premature Closure

Premature closure of PPF account isn’t permitted within 5 years of opening the account. Thereafter it must be closed on specific grounds, for example, life-threatening ailments affecting the account holder, spouse, dependent children or parents. Supporting medical documents have to be produced to help a case on these grounds.

Death of Account Holder

In case of death of PPF account holder, the proceeds of PPF account can be claimed by the nominees/legal heirs. The inquirer ought to present an application alongside Form G. Form G requires information pertaining to the case, for example, account number, nominee details, etc. Following documents are required to be submitted to guarantee the PPF account proceeds:

In case where the account holder has made nomination

1. Form G filled by all the nominees
2. Death certificate of the account holder
3. Passbook of the subscriber
4. In case where nomination isn’t made by the account holder and case is supported by legal evidence
5. Form G filled by legal heirs
6. Death certificate of the account holder
7. Succession Certificate, Letter of Administration or attested copy of the will
8. Passbook of the subscriber

In case where nomination isn’t made by the account holder and guarantee sum is less than INR 1 Lakh

1. Form G filled by legal heirs
2. Death certificate of the account holder
3. Annexure I to Form G (Letter of Indemnity) on stamped paper
4. Annexure II to Form G (Affidavit) on stamped paper
5. Annexure III to Form G (Letter of Disclaimer on Affidavit) on stamped paper

Development of Account

PPF account matures after a period of 15 years from the end of the money related year in which the account was opened. At the time of development, the account holder has three alternatives:

Withdrawal of development sum: The account holder can pull back the PPF sum alongside the interest accrued thereon. The entire development proceeds are exempt from tax.

Extension of PPF with commitment: A subscriber can extend the life of the PPF account indefinitely in squares of 5 years one after another. The subscriber needs to present a request to extend the account, with further commitments by submitting Form H. The choice of extension with commitment must be made within one year from the date of development, otherwise the default choice of extension moving along without any more commitment applies. Once the account is extended with commitments, most extreme 60% of the balance as on the date of extension of the account can be pulled back. This sum can be pulled back in one go or can be spread over several years. A limit of one withdrawal can be made in a year.

Extension of PPF moving forward without any more commitment: If no choice is made, then the default choice, i.e. extension moving forward without any more commitment applies. You don’t need to fill any form to choose this alternative. A limit of one withdrawal is allowed per year and any sum up to the all out balance in the account can be pulled back.

Once the PPF account is renewed with/without commitment, the alternative can’t be switched, i.e. from with commitment to without commitment or vice versa.

In case the sum is deposited in the PPF account without picking the correct alternative, no interest will be payable on such sum. Additionally, no deduction under Income Tax Act will be available on such commitment.

Premature Termination

The PPF account can be closed prematurely after completion of five monetary years on the accompanying grounds:

1. Treatment of serious ailments or life threatening diseases of the account holder, spouse or dependent children or parents
2. Higher education of the account holder or the minor account holder.
3. One percent interest will be deducted from the applicable interest rate on the premature closure of the PPF account

PPF Returns versus Bank FD Returns

Most bank FDs provide a somewhat lower rate of return than the PPF mean rate of 8%. The highest FD rate in SBI Bank is 6.40% (for a tenure of 5-10 years). The highest FD rate in ICICI Bank is 7.25% for 2-5 years. The highest FD rate in Axis Bank is 6.55% for a term of 1 year to 14 months. The highest FD rate in HDFC Bank is 6.50% for a term of 1-2 years.

PPF Returns versus ELSS Returns

ELSS or Tax Saving Funds don’t provide guaranteed returns like the PPF because they invest in stocks. However they likewise offer tax deductions under Section 80 C for commitments up to Rs 1.5 lakh, like PPF Their previous 5 year CAGR has been a lot higher than the PPF return. As per Value Research, the 5 year CAGR of the ELSS category is 21.19% compared to 8.2% for the PPF.

PPF Returns versus NPS Returns

NPS Returns depend on the asset assignment chosen and the performance of NPS funds. They are not guaranteed, while PPF returns are guaranteed. However by method of indicative performance, utilizing the Central Government NPS as an intermediary, NPS has delivered 9.95% on average over the five years ending July 31st, 2018. This is higher than the PPF return of 7.1%.

Step by step instructions to maximize PPF returns

1. Invest before the fifth of every month. PPF interest is calculated on the lowest balance between the fifth and a day ago of every month. For instance, in the event that you deposit Rs 10,000 on second Jan and another Rs 10,000 on fifteenth Jan, the interest might be calculated on Rs 10,000 and not Rs 20,000.
2. Invest the largest sum you can bear (up to Rs 1.5 lakh) toward the beginning of the monetary year to get the full benefit of exacerbating. Invest this sum before fifth April to get the full interest for each of the a year of the money related year. Try not to delay your investment till the end of the year, this will just reduce your PPF return.

PPF Returns after 20 years

PPF Returns will after 20 years give you the compounded value as per the average interest rate declared in the 20 year period. For example, if the average rate is 8%, Rs 1.5 lakh invested over 20 years will develop to as much as Rs 40.72 lakhs.

PPF Deposit Limits

You have to contribute to the Public Provident Fund (PPF) account each year to keep it active. The base commitment sum is Rs 500 and the greatest PPF limit is Rs 1.5 lakh. You can contribute whenever in the year and in any sum (subject to the overall least and most extreme). However you can make a limit of 12 commitments per year. For example you can contribute Rs 20,000 in June, Rs 40,000 in November and Rs 32,000 in January. The aggregate sum you have contributed is Rs 92,000 (less than Rs 1.5 lakhs) and hence, substantial.

PPF Withdrawal Limits

The PPF has a lock-in of 15 years. Incomplete withdrawals can be made from the expiry of sixth money related year after the year in which the account is opened. Example, if the account was opened on Jan 1, 2012, withdrawal can be made from monetary year 2019-20 onwards. Just a single fractional withdrawal is allowed per money related year. However, it is suggested that one should check with the respective website of the bank to determine when incomplete withdrawal is allowed. Some banks, for example, ICICI and Axis, permit withdrawals after 5 years and some after 7 years (SBI and HDFC).

The greatest sum that can be pulled back per budgetary year is the lower of following:

1. half of the account balance as toward the end of the budgetary year, preceding the current year, or
2. half of the account balance as toward the end of the fourth budgetary year, preceding the current year.

Form C is required to be submitted to pull back incomplete sum from the PPF account. Details, for example, account number, measure of money to be pulled back, etc. have to be mentioned on the form. A declaration expressing that no other sums were pulled back during the same budgetary year is additionally to be submitted. In case, the account is in the name of a minor, you have to sign an extra declaration expressing that the sum is required for the use of minor youngster who is as yet a minor and is alive. On the off chance that you have a PPF passbook, you have to present the same alongside the form.

PPF Loan Limits

The facility to benefit advance against the PPF account is available from the third money related year till the end of the sixth monetary year from the date of account opening. For example, if the PF account is opened on Jan 1, 2012 (FY 2011-12), the end of the budgetary year where the account was opened is Mar 31, 2012. The advance can be taken from first April, 2013 (FY 2013 – 14) ahead. Five years from the end of the money related year in which account was opened is March 31, 2018 (FY 2017 – 18). Subsequently, the advance can be obtained from Mar 31, 2013 to Mar 31, 2018. The greatest tenure of such an advance is three years.

Form D is required to be submitted to benefit credit against the PPF account. Form requires details, for example, account number, sum being borrowed, etc alongside the undertaking that the sum will be repaid with interest within three years.

The most extreme PPF limit for advances is 25% of the balance toward the end of the second money related year preceding the year in which the advance was applied for. In the above example, if the investor needs to take the advance in April 2013, the greatest credit that can be availed is 25% of the balance as on Mar 31, 2012.

The interest rate payable on credit taken against PPF account is 2% higher than the prevailing interest rate on PPF account. For example, in the event that the prevailing interest rate of PPF account is 8%, then interest payable on credit taken on such account would be 10%.

The interest on a PPF advance isn’t paid with the chief sum, just like the case with run of the mill credit EMIs. Once the chief sum is completely repaid the interest must be repaid within 2 months. In case the advance isn’t repaid within three years, interest at 6% more than the prevailing interest rate of PPF account is charged. A second advance can be obtained simply after the closure of first advance.

PPF Limits for Age

Any person of any age can open a PPF account. Parents/Legal watchmen can open PPF accounts for minors.

However one parent can just open one PPF account for one minor. In such a case, the PPF top level augmentation cutoff of Rs 1.5 lakh applies to the combined deposits in the two accounts. For example, on the off chance that you have contributed to Rs 70,000 to your own account, you can just contribute up to Rs 80,000 for an account opened for your minor child.

However, on the off chance that you have a daughter too, your spouse can open an account in her name. In, for example, case the Rs 1.5 lakh most extreme deposit breaking point will apply to your spouse and daughter combined.

PPF Applicability Limit

Just resident Indians can open PPF accounts. NRIs can continue to contribute to PPF accounts opened when they were resident Indians. However they can’t open fresh PPF accounts or extend the PPF account after the underlying development period of 15 years.