Basic Rules Governing the PPF Account
PPF stands for Public Provident Fund and it is a long-term debt investment product. More often than not, this is used for the purpose of tax saving. The added advantage of PPF is that it is a risk-free investment option, though there is a lock-in period of 5 years. If any loan is outstanding the loan amount will be deducted from the withdrawal amount.
Where can you open a PPF account?
A PPF account can be opened in any head post office, general post office and some of the selection grade Pos. It can be opened at any branch of SBI (State Bank of India). Some nationalised banks and now even some private banks like ICICI offer this facility.
How to open a PPF account?
To open a PPF account you have to fill in form ‘A’ and submit it at the nearest post office or nationalised bank along with the following documents:
a. Identity proof (e.g. passport, driving license, etc.)
b. Proof of residence (e.g. ration card, passport, rent agreement, etc.)
c. 2 Passport size photograph
After opening the account an initial installment amount should be paid. Once this is paid a pass-book is issued which reflects the balance in the account.
Eligibility for opening a PPF account
• A PPF account can be opened by any Indian citizen in his/her own name or as guardian in the name of a minor child.
• One person can hold only one account.
• NRIs are not eligible to open a PPF account.
• Subsequent to opening a PPF account if a person gets an NRI status, he can continue with the account that he had earlier opened prior to becoming an NRI.
• A PPF account can be opened by the parents on behalf of their minor children, though the same minor cannot hold more than one account.
• PPF account cannot be opened by grandparents towards their grandchildren, though they can open accounts in the absence of parents acting as guardians.
What is the investment limit?
One can invest Rs.70000 as a maximum limit per year and Rs.500/- which is the minimum investment to keep the account active. The amount can be done as a one-time lump sum or in 12 monthly installments.
What is the interest rate and tenure of PPF?
PPF account has a maturity period of 15 years. The current interest rate has been increased to 8.8% from 8.6% per annum. Prior to Nov 2012 it was 8% and was increased to 8.6%.
The interest computation is done on the basis of the lowest balance in the PPF account between the 5th day of the month to end of the month. The interest thus calculated is deposited in the account at the end of the year.
Loan availability against the PPF account
One more advantage of having a PPF account is the loan availability. This can be availed of after 3 financial years, which excludes the year of initial deposit. There are certain rules in place for the loans. It cannot exceed 25% of the total amount in the account. A new loan cannot be availed of, when a previous loan is outstanding or interest towards previous loan is due to be paid. Interest is charged @1% if repayment is within 36 months and @ 6% thereafter.
What are the Tax Benefits?
Any deposit made under the PPF scheme is deductible from the salary under section 80C. The interest earned is also tax-free.
In addition to the above, you can extend the PPF account for a block of 5 years beyond the maturity period of 15 years, by submitting form H within one year from the date of maturity of the account. A premature closing or withdrawal from PPF account is not permitted. The PPF account can be transferred from one authorised bank/post office to another. For this purpose the customer has to make an application for transfer of such an account.
With the prevalent online facilities these days, it is possible to operate PPF accounts online also. You should have a savings bank account in the bank that you open a PPF account in. Then all you need to do is to transfer funds from your SB account to your PPF account from the comfort of your home.
While you can operate an account online, it is mandatory to visit the bank for opening the account. The account opening form can be downloaded from the government websites and filled in. But submission of the forms along with the required documents and passport size photographs should be done in person at the nearest bank or post office.
Source: Think Rupee