Public Provident Fund (PPF) – Updated as per new rules from 01-Dec-2011


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The Public Provident Fund is the darling of all tax saving investments.No wonder! You invest in it and you get a deduction on your income. Besides, the interest you earn on it is tax-free. Since it is a scheme run by the Government of India. You can be sure no one is going to run away with your money. Here, we summarise the scheme, tell you how to open a PPF account and what to expect.

PPF refers to Public Provident Fund and is a Long Term Debt Scheme of the Goverment of India on which regular interest is paid. Any Individual (whether Salaried or Self-Employed or any other category) can invest in this scheme and can earn a handsome tax-free return on the same.

1. Where You  can open a PPF Account and How?
a . To open a PPF account, drop  by a State Bank of India branch. SBI’s subsidiary banks can also open accounts. You can even visit the nationalized bank in your neighbourhood. Selected branches of nationalised banks can also open accounts.The head post office or selection grade sub-post offices also open PPF accounts.

b. You will have to fill up a form. You can take a look or download the form from SBI’s web site. Along with the form, attach a photograph and submit your Permanent Account Number. If you do not have a PAN, then furnish an attested copy of either your ration card, voter’s identity card or passport. When you open an account, you will be given a passbook (just like a bank pass book) in which all subscriptions, interest accrued, withdrawals and loans are recorded.

2.  Who can open PPF Account?
Who Can Open PPF Account – Any Individual (whether Salaried or Self-Employed or any other category) can invest in this scheme. HUfs are no more allowed to open any PPF account

3. Who Can Not open PPF Account?
NRI’s are not allowed to subscribe to PPF Account. However, if someone opens a PPF Account while he is a Resident of India but subsequently becomes a NRI, he shall be allowed to continue investing in his account. Earlier  NRIs were not even allowed to make contributions into existing PPF accounts, that is, accounts opened before they became NRIs. However, in 2003, a notification (MOF (DEA) No GSR 585 (E) dated 25.7.2003) was issued permitting NRIs to continue investing in existing PPF accounts till maturity. If someone  inadvertently opened an account after becoming an NRI, it is best to close it before it comes to the attention of the concerned authorities in India.

4. Only One PPF Account?
You can have only one PPF account in your name. If, at any point, it is detected that you have two accounts, the second account you have opened will be closed, and you will be refunded only the principal amount, not the interest.

5. Joint Account?
You cannot open a joint account with another individual. The account can only be opened in one person’s name. You are free to nominate one or more individuals. On the death of the account holder, nominees cannot keep the account going by making contributions. If there are no nominees, the legal heirs get the money. You can open one account for yourself and others for your child/ children. But, on your death, your children cannot make any additional contributions.

6. Minimum and maximum deposit limit?
A minimum deposit of Rs. 500 must be made during one whole financial year. The maximum that could be deposited is Rs. 1,00,000 (till 30-11-2011 Rs.70,000) in a financial year.  The interest you will earn is 8.6% (till 30-11-2011 8%) per annum. Deposits could be in either one go, or in flexible instalments (in multiples of Rs. 10). You could vary the amount and the number of instalments, as per your convenience, provided you do not exceed 12 instalments in one financial year. Failing to deposit the minimum requirement, would lead to your account being discontinued. Interest would however continue to accrue. You could regularize the account again on paying the prescribed default fee along with subscription arrears.

7. Continuing PPF after the 15 year period?
The PPF account is valid for 15 years. The entire balance can be withdrawn on maturity, that is, after 15 years of the close of the financial year in which you opened the account. So, if you opened it in FY 2006-07 (this financial year), you will be able to withdraw it 15 years later, starting March 31, 2007 (end of this financial year). That means your PPF matures on April 1, 2022. It can be extended for a period of five years after that. During these five years, you earn the rate of interest and can also make fresh deposits. Once your account expires, you can open a new one. The only limitation is that you cannot withdraw it until seven years are completed, after which 50% of your deposits can be withdrawn, if needed.
PPF account holders have an option of extending their accounts after the 15 year tenure with or without further subscription, for any period in a block of 5 years. The balance in the account will continue to earn interest at normal rate as admissible on PPF account till the account is closed. In case the account is extended without contribution, any amount can be withdrawn without restrictions. However, only one withdrawal is allowed per year.
If you continue the account after 15 years, with continued deposit, withdrawal up to 60 per cent of the balance at the beginning of each extended period (block of five years) is permitted.

8. Opening an account for a minor? 
There have been certain practical hurdles in respect of opening of accounts for minor vis-à-vis some intermediary agencies. This clarification reiterates that as per the rules under PPF scheme, an individual may on his own behalf or on behalf of a minor of whom he is a guardian, open a PPF account. Further, either father or mother can open PPF account on behalf of his / her minor child, but both cannot open the account for same child.
Let’s say you open an account for your minor child. You can deposit Rs 100,000 in your account and Rs 100,000 in your child’s account. In this case you can in my opinion take the maximum benefit of Rs. 1,00,000/- U/s. 80C.  As Limit of Maximum Investment in a year of 1,00,000/- is fixed by Public provident Fund Act not by Income Tax law.

9. Loans on PPF Account?
Loans can be availed from the 3rd financial year excluding the year of deposit. Amount of such loans must not exceed 25 percent of the amount that stood to the account holder’s credit at the end of the second year immediately preceding the year in which the loan is applied for.
A fresh loan is not allowed when a previous loan or interest is outstanding. Interest is charged at a rate of 2% (till 30-11-2011, 1%)  if repaid within 36 months and at 6% on the outstanding loan after 36 months. The repayment may be made either in lump-sum or in Instalments.

10. Benefit of Investing in PPF – Taxation of PPF?
a.  Benefit u/s 80C – The Investments made in PPF Account are eligible for deduction u/s 80C

b.  Tax Free Interest – No Tax is payable on the Interest Earned on PPF Account.

11. Premature withdrawal from PPF?
The entire amount in your account could be withdrawn only on maturity. However, in times of financial crises partial withdrawals are permitted subject to certain ceiling limits. You could withdraw once a year, from the 7th year onwards. Such withdrawals, must not exceed, 50% of the balance at the end of the fourth year, or 50% of the balance at the end of the immediate preceding year, whichever is lower. Pre-mature closure of a PPF account is permissible only in case of death.

12. Rate Of Return?
The Interest Rate of PPF is decided by the Govt. The Current Interest Rate on PPF is 8.6%. The Interest is computed for a calendar month on the basis of the lowest balance in an account between the close of the 5th day and the end of the month and the Interest is credited to the account of the account holder at the end of the year.

13. From which account can an NRI invest in the PPF account?
An NRI can use funds in the NRE account or the NRO account to make investments in the PPF account. It is important to remember that the PPF rules require you to invest at least Rs 500 per financial year in the PPF account.

14. What happens on maturity of PPF Account of NRI?
If you are an NRI at the time the deposit matures, you would need to withdraw the balance. An NRI is not eligible for extension on the PPF account. What happens if you leave the account unattended past the maturity date? “In such cases the account will be considered ‘extended without contribution’

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  1. #1 by Chandresh Shah on April 30, 2013 - 4:25 PM

    i want to transfer my ppf accont from sbi to icici in another state of india. is it allowed? what is the procedure?

  2. #2 by MULRAJ on April 5, 2013 - 6:10 PM

    I HAVE RENEWED MY PPF ACCOUNT AFTER 15 YEARS 3 TIME -5 YEAR PERIOD CAN I CONTINUE THE ACCOUNT FOR NEXT 5 YEARS OR NOT PLEASE ADVICE

  3. #3 by ganesh on March 25, 2013 - 7:45 PM

    if the ppf account is closed at the end of the 15th year whether interest earned on the account is taxable or not

  4. #4 by v.krishnamoorthy on March 20, 2013 - 8:11 AM

    I am contributing one lac of rupees in own PPF account. Can I remit another one lac in my minor child?
    V.krishnamoorthy

  5. #5 by ashok kumar on March 3, 2013 - 7:03 PM

    manish chouhan of of JAGOINVESTOR says that the interest being credited to PPF each year can be withdrawn each year. I donot read it any whwre in the Govt. Website for PPF rules . Can U clarify.

  6. #6 by ramesh chand on February 16, 2013 - 1:32 PM

    I was opened a ppf a/c in sbi.in 2003,In which i deposited regular payment four years ie upto 2007. Due to some reasons i could not deposit the money in a/c.how many payment made by me upto mar.2013

  7. #7 by bharti kurrey on November 24, 2012 - 3:33 PM

    maine sbi me ppf account 2008 me open kiya tha jisme 2010 k baad se ab tak transaction nahi hua? mai ab us account ko continue karna chah rahi hu, kya mai usme amount deposite kar continue kar sakti hu?

  8. #8 by Ellis Nathan on September 12, 2012 - 11:26 AM

    There are two accounts in the name of minors started in November 2003. The contributions were made until March 2007. Thereafter the account holders migrated to Australia. What’s the procedure to be followed in this case.

  9. #9 by xyz on July 24, 2012 - 11:25 PM

    wts the taxability of withdrawal of sum deposited on maturity
    wts the taxability of withdrawal of interest earned on maturity

  10. #10 by Dhanya on July 7, 2012 - 4:07 PM

    I have account which has completed 15 year but i have fail to extend for 5 years as i was not aware about the same and Bank didnot intimate the same. Now the bank is telling me to closed the account and open new open what is the status of my account ? is it any way to continue the same account…

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