The public provident fund (PPF) account is opened to accumulate a corpus for meeting retirement needs at banks or post office. To keep the account active an individual needs to invest a minimum of Rs. 500 in a fiscal year. But what if one is not able to invest a minimum of Rs 500 in a year? What happens when PPF account becomes inactive – does investor lose interest or has to close the account or he can he invest in Public Provident Fund.
When does a PPF account becomes dormant?
The minimum deposit amount is Rs 500 and maximum Rs 1.5 lakh per year. If the minimum amount is not deposited in a financial year, PPF account becomes inactive or dormant. Year is counted as from Apr of a year to Mar of next year ex Apr 2015 to Mar 2016.
What happens if PPF account becomes dormant?
Though the amount lying in the PPF’s account will continue to accrue interest during this period, the investor will not be able to avail of a loan against the PPF and won’t be eligible for a premature withdrawal. But if the investor’s PPF account has already matured, it will not earn any interest from the date of maturity. Matured accounts cannot be revived, but penalty will be payable in order to claim the maturity proceeds.
If the PPF account is close to maturity, you can apply for an extension, with or without further contribution, for a period of five years from the date of maturity to be able to earn an interest on the accumulated amount.
Overview of PPF account
PPF comes under the THE PUBLIC PROVIDENT FUND ACT. Features of PPF are given below. Our article Understanding Public Provident Fund, PPF explains in detail about the investment amount, interest rate, power of compounding, who can open, where can one open etc.
- PPF works on financial year basis (April 1st – March 31st).
- The interest earned in PPF remains fixed for one year and is no longer guaranteed forever. It is actually benchmarked to the 10-year government bond yield and will be 0.25% higher than the average government bond yield. This rate will be declared every year in March-April.
- The interest rate is around 8% for FY 2015-16 it is 8.70% p.a.
- You need to deposit a minimum of Rs. 500 per year in a PPF account.
- Maximum amount which you can deposit in a PPF account is Rs. 1,50,000 effective Sep 2014. (Earlier limit was Rs 70,000 it was increased to 1 lakh from 1.12.2011 )
- Deposit amounts should be in multiple of Rs. 5.
- You can deposit lump sum or multiple instalments.
- Maximum number of instalments in a year can not be more than 12.
- Amount of each instalment in a month and also in different years can vary.
- Ex: In a year one can remit Rs 500 in month of Apr, then 2000 in month of July, 5000 in month of Mar. In the next year one can pay Rs 5000 in month of Jun.
- Amounts can be deposited in cash, cheque or via demand draft. If you are depositing a cheque or demand draft, then the date of deposit that will appear in your PPF account will be the date of cheque clearance and not the day you present the cheque. Say if you deposit the cheque on the 1st of the month but it fails to clear by the 5th for whatever reasons, you will loose out whole month’s interest
If my PPF account has become dormant can I open another PPF account?
No. A dormant account does not imply that it has been closed, the investor cannot open a new account. The investments must be resumed in the existing account after reactivation.
How to make the dormant PPF account active?
In order to revive the account,you must give a request in writing to the bank or post office where the account is held. Since the PPF account has been declared inactive, reactivating it will require a personal visit and verification by the bank.
Does one have to pay penalty for not depositing in PPF account in a year?
A penalty of Rs 50 for each year of default is also payable along with the arrears. So if you have missed contributing in PPF for 2 years then you have to pay Rs 50 *2 = Rs 100 as penalty.
Can one pay for the years one missed in paying PPF account?
Yes. Along with the reactivation request and penalty, you must deposit at-least Rs 500 for non-payment in each financial year. Maximum that one can deposit is Rs 1.5 lakh as on Oct 2015. So if you have missed paying for 2 years then you can pay from Rs 500 * 2 to Rs 1.5 lakh * 2 .
Please don’t your PPF account become dormant or inactive. Did your PPF account become inactive at some time? Were you able to reactivate it?