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Public Provident Fund (PPF) is a long-term, government-backed small savings scheme of the Central Government started with the objective of providing old-age income security to the workers in the unorganized sector and self-employed individuals as they do invest in Employee Provident Fund (EPF). Public Provident Fund is an ideal vehicle for long term investment in fixed-income/debt category, an important retirement saving tool for individuals, more so for those who are not salaried employees. This article covers the Public Provident Fund in detail, the investment amount, interest rate, power of compounding, who can open, where can one open and more.

All about PPF, Public Provident Fund

When one invests in PPF one should be careful of following things

  1. Overview of PPF
  2. How to invest in PPF
  3. Interest Rate on PPF
  4. Dormant PPF
  5. Interest Rate on PPF
  6. Risk in PPF
  7. Show PPF Interest in Income Tax Return
  8. Withdrawal from PPF
  9. Premature closure of PPF
  10. Loan from PPF
  11. Nominee in PPF
  12. Duration of PPF account

Overview of PPF

On 12th December 2019, the Government of India notified the Public Provident Fund (PPF) Scheme, 2019 under Section 3A of the Government Saving Promotion Act, 1873 thereby replacing the Public Provident Fund (PPF) Scheme, 1968

PPF Scheme is 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.  It comes under EEE.

  • Amount invested in PPF account can be claimed as tax deductions under section 80C upto limit of 1.5 lakhs.
  • Interest earned on deposits in the PPF account is not taxable.
  • PPF Withdrawal is tax free.

PPF comes under THE PUBLIC PROVIDENT FUND Scheme, 2019 which you can read here. Features of PPF are as follows:

  • Indian Citizen who is a Resident Indian can open PPF account. Even if one has an Employee Provident Fund (EPF) account.
  • PPF account can be opened with the State Bank Of India, or its associates , Post offices, or any other Certified Bank like ICICI Bank, HDFC Bank,Axis Bank.
  • PPF account is opened for a minimum period of 15 years. This tenure can be further extended for a minimum term of 5 years.
  • Premature closure of account is allowed in certain cases after completion of 5 years. It was introduced in the year 2016. One has to use Form 5(newly created)
  • In a financial year, an investor can deposit a minimum of Rs. 500 and a maximum of Rs. 1,50,000 in their PPF account.
  • Deduction U/s 80C of Income Tax is available for the amount invested in PPF.
  • The government pays yearly interest on the balance in the PPF account.
  • Interest earned in the PPF account can only be redeemed after maturity.
  • Interest received from PPF investments is Tax-Free.
  • Amount in PPF can be withdrawn from the 7th year onwards. This withdrawal amount is restricted to 50% of the previous years’ balance.
  • Loan against the balance in PPF account can be availed after three years. Maximum of 25% of the balance in the PPF account is made available as the loan amount.  The amount received at the time of maturity is completely tax-free.
  • PPF account balance cannot be attached under circumstances of any order or decree of court against an individual’s debt or any other liability.

PPF works on a financial year basis (April 1st – March 31st). The interest on PPF changes and has been above 8%.  The balance amount in PPF account is not subject to attachment under any order or decree of the court in respect of any debt or liability, but it can be attached by the Income Tax and Estate Duty authorities. Let us look at each of these features in detail, Links below expand on the sub-topic in detail.

Comparison of PPF with other Retirement Options

Let’s look at the options for building a retirement kitty :

  • Pure debt instruments such as the PPF, NSC and tax-saving FDs . They offer an assured return of around 8% in the long term.
  • Mutual Fund Pension Plans
  • Insurance Pension Plans
  • National Pension Scheme

Comparison of PPF with other retirement Options is shown below

Comparing PPF with other Retirement Options

Comparing PPF with other Retirement Options

Investment Amount in PPF

  • You need to deposit a minimum of Rs. 500 per year in a PPF account.
  • The maximum amount which you can deposit in a PPF account is Rs. 150,000. The limit was increased to Rs. 1.50 lakhs in budget 2014-15. Before 1.12.2011 limit was Rs 70,000 it was increased to 1 lakh from 1.12.2011 .
  • Deposit amounts should be in multiples of Rs. 50. (Before 12 Dec 2019, it was Rs 5)
  • You can deposit lump sum or multiple instalments. The limit of the maximum number of instalments in a year can not be more than 12 was removed on 12 Dec 2019 in new PPF.
  • Amount in each installment can be different. For example, in the month of May, you deposited 10,000 but in the month of Oct, you can deposit 500 only with no contribution in other months.
  • Amount of investment in PPF in each financial year can be different. For example in FY 2014-15(from 1 Apr 2014 to 2015) you deposited Rs 50,000 but in FY 2015-16 you deposited 30,000 and in FY 2016-17 you deposited only 500 Rs.
  • Amounts can be deposited through online, cash, cheque or via demand draft. Our article How to Deposit in PPF amount explains the process in detail.
  • If you are depositing a cheque or demand draft, then the date of the 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 lose out whole month’s interest!
  • After investing please get the passbook updated.

Dormant PPF account

If you do not deposit the minimum amount, then account will be termed as discontinued account. Interest would, however, continue to accrue. You could regularize the account again by paying the penalty fee of Rs 50 for each year of the minimum amount has not been deposited along with subscription arrears of Rs 500 per Financial Year.  For example, if you paid in Rs. 400 in year 1, Rs. 10,000 in year 2 and Rs. 0 in third year. You would need to pay into your PPF account fees of Rs. 50 per year where you did not pay the minimum Rs. 500. In the example, you would have to pay Rs. 100 as fees (50 for 1st year on 400 Rs investment, 50 for 3rd year on 0 investment). Additionally, you would have to deposit Rs. 100, Rs. 0 and Rs. 500 as arrears for year 1,2 & 3 as the amount deposited fell short of Rs. 500.

Our article How to activate Dormant PPF account? explains the process in detail.

Duration of PPF account

The duration for the investment is 15 years. However, the effective period works out to 16 years i.e., the year of opening the account and adding 15 years to it. The contribution made in the 16th financial year will not earn any interest but one can take advantage of the tax rebate. So if you were to open a PPF account on the 1st of April 2010, the counting actually begins from the end of the year, i.e. 31st March 2011. So your account will mature on 31st March 2026 and not 31st march 2025!

So add 15 years to 31 Mar of the financial year in which you opened the account. For account opened anytime between 1 Apr 2016 to 31 Mar 2017 date of maturity is 31 Mar 2032. (2017 + 15= 2032).

Therefore, an account opened on say 10th October 2010, will mature on 1st April 2026 (after the expiry of 15 years from the end of the financial year in which the account was opened i.e. 31.03.2011) and not on 10th October 2025 (after the expiry of 15 years from the date of opening of the account).

The account holder has an option to extend the PPF account for any period in a block of 5 years after the minimum duration elapses. The account holder can retain the account after maturity for any period without making any further deposits. The balance in the account will continue to earn interest at the normal rate as admissible on PPF account till the account is closed.

PPF works on a financial year basis (April 1st – March 31st) and interest is credited only at the end of the financial year.

Interest earned on PPF account Detailed Calculation

PPF works on a financial year basis (April 1st – March 31st). The interest is paid as per the rates declared by the Government from time to time(quarterly now) , has been above 8% p.a. . PPF interest is calculated monthly on the lowest balance between the end of the 5th day and last day of the month, however, the total interest in the year is added back to PPF only at the year-end. So if you don’t deposit on/before the 5th of a month, you don’t earn interest for that month. The calculations are shown in picture below.

How ppf is calculated

How ppf is calculated

Note: For monthly calculation, one needs to use monthly interest which is (interest Per annum /12), which in above example is 8.8%/12.

So if you were planning on investing into it monthly, it is advisable you invest (i.e. your PPF account is credited with the investment amount) on or before the 5th of every month better still if you can invest the whole amount (Maximum 1 lakh (1,00,000) by April 5th.

History of Interest Rate of PPF

The interest on PPF is paid as per the rates declared by the Government from time to time. Earlier, the rate of interest was notified every year before the beginning of a new financial year. However, from 2016-17, the rate of interest has been fixed on a quarterly basis The government had moved to market-linked rates for small savings products, such as PPF, Kisan Vikas Patras and Senior Citizens Savings Scheme, to link the returns to government bonds so that these instruments do not eat into the bank deposit base. It is actually benchmarked to the 10-year government bond yield and will be 0.25% higher than the average government bond yield.  The PPF interest Rates since 1st April 1986 are given below

Period Interest Rate p.a. 
01 April 1986 – 14 Jan 2000 12%
15 Jan 2000 – 28 Feb 2001 11%
01 March 2001 – 28 Feb 2002 9.50%
01 March 2002 – 28 Feb 2003 9.00%
01 March 2003 – 30 Nov 2011 8.00%
01 Dec 2011 – 31 March 2012 8.60%
01 April 2012 – 31 March 2013 8.80%
01 April 2013 – 31 March 2016 8.70%
01 April 2016 -31 Mar 2017 8.10% | 8.1% | 8.1% | 8%
01 Apr 2017 -31 Mar 2018 7.9% | 7.8%| 7.8%|7.6%
01 April 2018 -31 Mar 2019 7.6% | 7.6% | 8% | 8%
01 April 2019 -31 Mar 2020 8%| 7.9%| 7.9% |

Risk in PPF

An investment in the PPF is equivalent to the risk of lending to the government, and hence has the lowest level of default risk.

PPF and Income Tax Return

Though PPF falls under EET you need to show the amount invested in PFF under section 80C, if you are claiming 80C benefit, and show interest earned as exempt Income.

  • The amount you invest is eligible for deduction under the Rs. 1, 50,000 limit of Section 80C. Remember benefits expenses like life insurance premiums, children’s school fees qualify under Section 80C as deductions in addition to other approved investment mediums like ELSS, 5 year FD’s, NSC etc. If you have exhausted your 80C contributions you can still deposit 1,50,000 without claiming 80C deductions.
  • Interest earned on the investment is completely exempt from tax under Section 10 (11) of the Income Tax Act.. On maturity, the entire amount including the interest is non-taxable. One should show the interest income of PPF account in the section of exempt income as shown in our article Filling ITR-1 : Bank Details, Exempt Income, TDS Details

    Exempt Income

    Exempt Income

8% tax-free interest is effectively 12.85% pre-tax interest if you are in the 30% tax bracket and 11.25% if in the 20% tax bracket. It is difficult to find fixed-income instruments (at the same low-risk level) that can yield you comparable returns!

Liquidity of PPF

From liquidity point of view, your funds are locked in for 16 years. From From 1 Apr 2016 you can close your Public Provident Fund account under certain circumstances, provided the account has completed five years.  Loan facility is available from the third year and Partial withdrawals are allowed only from the sixth year onwards.

Premature closure of PPF

Our article Premature closure of PPF explains the process in detail From 1 Apr 2016 you can close your Public Provident Fund, provided

  • The account has completed five years.
  • Premature closure of PPF accounts shall now be permitted in cases such as serious ailment, higher education of children, change in resident status of account holder.
  • The person withdrawing will get 1 per cent less interest as a penalty for premature closure.
  • One has to approach the bank/post office where one has PPF account. One has to submit the Account closure form. Excerpt Closure form of PPF from post office,Form SB-7A

Loan from PPF

Our article How to take Loan from PPF explains the process in detail with Loan Calculator.

  • You can take a loan on the PPF from the third year of opening your account to the sixth year. So, if the account is opened during the financial year 2009-10, the first loan can be taken during financial year 2011-12.
  • The loan amount will be up to a maximum of 25% of the balance in your account at the end of the first financial year. You can avail a loan amount of up to a maximum of 25% of the balance in your account at the end of the second year immediately preceding the year in which the loan is applied for.
  • The loan must be repaid in a maximum of 36 EMIs.
  • Interest payable on PPF Loan is 1% per annum above prevailing PPF rates(1% upto 2012, became 2%  till  Dec 2019). if the PPF interest rate is 8%, you would have to pay a rate of 9% if you take a loan against PPF. The interest is levied from the first day of the month in which the loan is taken to the last day of the month in which the last installment of the loan is paid.
  • If the loan is not repaid back, the interest is charged at 6% per annum.
  • You can take a second loan against your PPF account before the end of your sixth financial year, but your second loan can be taken only once your first loan is fully settled.

For example, Let’s suppose you opened your PPF account in December 2011 (in the FY 2011-12), you can avail a loan only in FY 2013-2014 (2012+2 = 2014) till FY 2016-2017 (2012+5=2017). If you apply for a loan in November 2013 (FY 2013-2014), you would get 25% of the amount that existed at the end of March 2012 (2014-2 = 2012).

For example, The first loan can be taken in the third year of opening the account i.e., if the account is opened during the year 2007-08, the first loan can be taken during the year 2009-2010. The loan amount will be restricted to 25% of the balance including interest for the year 2007-08 in the account as on 31/3/2008.

Withdrawal from PPF

Our article PPF Partial Withdrawals explains the partial withdrawal from PPF with calculator.

  • You can make withdrawals from the sixth year i.e after expiry of 5 years full financial years from the end of the year in which your initial subscription was made. This means that from the day you open your account, you will need to complete 6 full financial years before you can make any withdrawal.
  • You are allowed to withdraw 50% of the balance at the end of the fourth year, preceding the year in which the amount is withdrawn or the end of the preceding year whichever is lower.
  • Not more than 1 withdrawal can be made in a year.
  • The withdrawal amount is not repayable.
  • After the expiry of 15 years duration when the PPF account gets matured and the entire funds can be withdrawn from the account.

For example, if the account was opened in 2000-01, and the first withdrawal was made during 2006-07, the amount you can withdraw is limited to 50% of the balance as on March 31, 2003, or March 31, 2006, whichever is lower.

For example, if you opened your PPF account on April 1st, 1993, you can make your first withdrawal after April 1st 1999, and the amount of withdrawal will be limited to 50% of the balance as 31st March, 1995, or the balance on 31st March 1999, whichever is lower.

Nominee in PPF

In case of death of the account holder, the balance amount in the account of the deceased account holder will be paid to his nominee or legal heir, as the case may be, even before expiry of 15 years. The nominee or legal heir cannot continue the account by making fresh subscriptions to it. If the balance in the amount is more than  1 lakh, then the legal heir or nominee has to prove identity and provide the relevant documentation to claim the amount in the PPF account.

On Maturity of PPF

A PPF account has a maturity of 15 years. After 15 years, you have the following options :

  • Encash the total maturity proceeds of the PPF account which is exempt from tax.
  • Within 1 year from date of expiry of 15 years, apply for extending the PPF block period of 5 years.

If one applies for an extension of your PPF account one again has two options:

  • The account holder can retain the account after maturity for any period without making any further deposits. The balance in the account will continue to earn interest at normal rate as admissible on PPF account till the account is closed.
  • The account holder can make deposits as earlier.

After the expiry of 5 years, you can continue to extend the duration of the PPF account by 5 years. There is no limit to the number of such extensions.

For example, if you opened a PPF account in the year 2000, then it would mature in the year 2015. In the year 2015 you would have an option to encash your PPF balance or to extend the maturity of PPF for 5 years upto 2020. This decision would have to be taken by you up to 2016 (within 1 year after maturity). After 2020, you can continue to extend your PPF account to years 2025, 2030 and so on.

How much can one earn through PPF?

PPF is a long term investment and banks upon the Power of Compounding – the more the number of years for which you invest better the returns. If one invests Rs 1 lakh before 5th Apr every year in PPF, after 15 years he will earn 31.44 lakh assuming the interest rate is 8.8% throughout the tenure as shown in the picture below:

PPF Total calculation

PPF Total calculation

At different interest rates, the gains are as shown in the picture below.

PPF : How much at different interest rate

PPF : How much at different interest rate

How much would one get on maturity in PPF, assuming the same amount invested yearly before 5th of every year and return of 7.6%

How much will you get on investing in PPF, maturity amount

How much will you get on investing in PPF

Who can Open a PPF Account

PPF is classified as a small saving scheme and can be opened by an individual (salaried or non-salaried). No Joint account can be opened.

  • Individual: An individual can open only one PPF account to which he contributes. If you have a General provident Fund account(GPF), or an Employees Provident Fund(EPF) account, you can still have a PPF account A PPF account can also be opened in the name of your spouse or children. At any point in your life, you are allowed to have only 1 PPF account in your name.  If at any time it is seen that you have more than 1 account in your own name, the second account will be deactivated, and only your principal will be returned to you.
  • Minor: Account can also be opened in the name of minor through guardian who can be father or mother or a person appointed by court (if guardian is not there). However that will be the child’s account, the parent is simply the guardian.
    • Grandfather or grandmother are not allowed to open an account in the name of Grandchildren.
    • PPF rules limit the investment to a maximum of Rs 1,50,000 in the PPF accounts of self and minor child together in a financial year.
    • If the account is opened in the name of the minor and the minor attains majority before the maturity of the account, then the ex-minor will himself continue the account thereafter. He will submit a revised application form for opening the account to the Accounts Office. His signature on the application form will be attested by the guardian who opened the account of the minor or by a respectable person is known to the Branch. Our article PPF Account for Minor and Self discusses it in detail.
  • Hindu Undivided Family (HUF): Until 13 May 2005, HUFs could also invest into PPF. However subsequent to that date HUF can no longer open fresh PPF accounts. Existing PPF accounts of HUFs shall not be renewed after the expiry of the initial duration of the PPF.
  • NRI The PPF Scheme 2019 does not explicitly prohibit non-residents from opening a PPF Account and it is also silent on the question of whether someone who becomes non-resident subsequently can continue to contribute. However, it requires a declaration that the individual is a resident of India in the account opening form (Form 1). It also lays down change of residency as a ground on which a PPF account can be terminated prematurely, after a period of 5 years from opening

Where can one open PPF  account?

The PPF scheme is operated through Post Office and Nationalized banks and private Banks like ICICI bank offers this account. It can be opened with a minimum deposit of Rs. 100 at any branch of the State Bank of India (SBI) or branches of it’s associated banks like the State Bank of Mysore or Hyderabad.A PPF account cannot be transferred from one person to another. Account is transferable between post offices or banks but this will involve some leg work. Our article Transferring PPF account explains the process in detail.

Many banks like SBI and ICICI offer online access to PPF accounts opened through them. You will be able to make subsequent deposits online if you choose this facility. PPF accounts opened at post offices do not have online access facility yet.

Documents Required to open PPF:To apply for the PPF Provident Fund ( PPF ) scheme, 1968, you have to fill Form A , photograph(s),  PAN Number ,  proof of address.

Banks in which PPF account can be opened are:

  • 1. SBI
  • 2.SBI Subsidiaries (Patiala, Bikaner & Jaipur, Travancore, Hyderabad, Mysore)
  • 3. ICICI (PPF Account ICICI Bank)
  • 4. BOB – Bank of Baroda
  • 5. Central Bank of India
  • 6. BOI – Bank of India
  • 7. Union Bank of India
  • 8. IDBI
  • 9. Vijaya Bank
  • 10. Allahadbad Bank
  • 11. Oriental Bank of Commerce
  • 12. Bank of Maharasntra
  • 13. Canara Bank
  • 14. Central Bank of India
  • 15. Corporation Bank
  • 16. Dena Bank
  • 17. Indian Bank
  • 18. IOB – Indian Overseas Bank
  • 19. PNB – Punjab National Bank
  • 20. United Bank of India
  • 21. IDBI Bank
  • 22. Axis Bank

PPF online and  State Bank of India

  • The savings account can be in any bank, it is necessary for the PPF account to be at an SBI branch.
  • You will need to link the PPF account to the savings account in the same branch.
  • If your PPF account and savings account are in different SBI branches or even in a different bank. You can simply add the PPF account in your Net banking list of third party transfer and continue smoothly with the transaction.
  • One can refer to Chartered Club PPF Account in SBI for more details.

PPF Online and ICICI Bank

  • You need to have a ICICI Bank account before you open the PPF account in ICICI. However, the account can be in any branch of ICICI
  • You can not open PPF account in any ICICI Branch. For each city, there are special designated branches for opening PPF account. List of PPF authorised branches at ICICI bank
  • ICICI Bank offers an online account opening facility also.
  • By default ICICI bank does not provide a PPF passbook when you open it. However, the Customer can view his/her transactions through his/her statement of accounts available online on the Website.If you really need it, you will have to give a written request and only after its processed it will be given
  • ICICI bank webpage on PPF has more details.

On getting the PPF and bank account linked together, you can then check the status of you PPF account too. You get online transactional rights for your PPF account. Through this facility you can make PPF contributions online too. Jagoinvestor’s Online transfer to your Public Provident Fund (PPF) account explains the process with pictures.

New PPF Rules 2019

On 12th December 2019, the Government of India notified the Public Provident Fund (PPF) Scheme, 2019 under Section 3A of the Government Saving Promotion Act, 1873 thereby replacing the Public Provident Fund (PPF) Scheme, 1968.The new PPF rules as per the notification are in Public Provident Fund Scheme, 2019, New PPF Rules . The image below shows the difference between PPF 2019 and PPF 1968.The image below shows the difference between PPF 2019 and PPF 1968.

Changes in the PPF from Dec 2019

Changes in the PPF from Dec 2019

PPF Forms

Form have changed:

Old Form Description New Form
Form A Application for opening a Public Provident Fund Account Form 1
Form B Contribution Form Not provided
Form C Application for withdrawals Form 2
Form D Application for a loan Form 2
Form E Application for Nomination Not provided
Form F Application for cancellation/variation of nomination previously made Not provided
Form G Application for the closure of the PPF account Form 3
Form H Application for continuance of account beyond 15 years/Extension Form Form 4
  Application for premature closure of the account Form 5

Video on PPF account

Public Provident Fund or PPF Account benefits are discussed in Hindi by Asset Yogi. How to open a PPF account online or in Post Office, PPF Calculator, Interest Rate and other PPF rules regarding withdrawal, eligibility, maturity period etc. are discussed in detail.

Related Articles:

Public Provident Fund (PPF) is one of the safest forms of investment. If you continue to invest into it for a long term and enjoy it’s tax free benefit which is largely dependent upon the power of compounding.  Have you invested in PPF?

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