The Public Provident Fund (PPF) scheme is one of the most common and favorite investment class for a large number of individuals today in their overall financial planning. Let’s discuss and check PPF Details.
You hear more about it in the first quarter of the year when investors scurry to invest in tax saving instruments. The Public Provident Fund or PPF stands out tall and mighty amongst the fixed income instruments. So we thought to share PPF details with you.
Let’s take a quick look at what the PPF is what it has to offer.
What is the Public Provident Fund (PPF)
This is a government run fixed income instrument started with the purpose of providing income security to workers in the unorganized sector and self-employed individuals. Unlike employees who are salaried and who save in the form of a provident fund, nonsalaried individuals don’t get the benefit of putting away money into a provident fund.
So the government established the PPF in 1968 for them for investing their hard earned money.
PPF Details Updated till 2019
Where can a PPF account be opened ?
It can be opened at any branch of the State Bank of India (SBI) or its subsidiary; some nationalized banks that handle PPF accounts and any post office.
Who can open a PPF account ?
An individual can open a PPF account on his own or on behalf of his children. He obviously needs to be the guardian of the minor. In case you open an account with your children, the total investment across all PPF accounts cannot exceed the maximum limit of Rs 1500000/- per year. So you cannot open two accounts and put in Rs 150000/- in each.
The PPF can be used by the employed, the unemployed, minors, housewives and in fact, even people without an income can open a PPF account.
What do you need for opening a PPF account ?
You will have to fill up a form which you can download from SBI’s web site. Attach a photograph with the form and submit your Permanent Account Number.
If you do not have a PAN, then you can attach an attested copy of either your passport, ration card or voter’s identity card. After you open an account, you will get a passbook in which all contributions, interest earned and withdrawals are recorded.
How does it work ?
Each year, you need to deposit a minimum of Rs 500/- and a maximum of Rs 150,000/- in your fund account.
PPF currently offers 8.00% (Updated 01 May 2019) rate of interest and this is compounded annually. This rate of interest is decided by the government each quarter and so it is not fixed. The interest is calculated on the minimum balance between the fifth day and the last day of the month. This interest is credited to the account by the end of the financial year i.e. March 31st each year.
Tenure of PPF
The duration of investment is 15 years. After this expires, the investor has the option to extend this by a block of 5 years each. This extension can be done any number of times.
If the investor does not want to extend his PPF account, he can simply stop investing and continue with the account.
Tax Benefits of PPF
Any amount you invest each year in PPF is eligible for tax deduction under Section 80C. The maturity amount that you receive is also not taxable.
Given this double-edged benefit, most of the other fixed income instruments pale in comparison to the PPF.
How liquid is PPF?
Liquidity is defined as the ability to convert an investment into cash quickly. Having said that, PPF is an illiquid investment class. Let us see how withdrawals and loans work.
PPF Withdrawal Rules
A loan can be taken from the third third of opening your account and only till the sixth year. So if you opened an account in 2005-2006, the year in which you can take the loan will be 2007-2008. The amount of loan you take can be only 25% of the account balance that exists at the end of the first financial year. The rate of interest on the loan is 1% more than the rate you get on your PPF account.
You can do only one withdrawal starting anytime from the sixth year, no withdrawals are allowed before the sixth year.
You can withdraw only 50% of the the lower of
- the balance at the end of the fourth year, preceding the year in which the amount is withdraw OR
- the balance at the end of the preceding year
To take an example, if you opened the account in 2004-2005 and the first withdrawal is made in 2009-2010, then you can withdraw only 50% of the lower of
- the balance at the end of 2005-2006 or
- the balance at the end of 2008-2009
Invalid PPF accounts
If you do not pay the minimum Rs 500/- in a year, your account stands invalid. Withdrawals are not possible from an invalid account. You can revive your PPF account by paying a fine of Rs 50/- per year and all the pending minimum payments till date.
So for example, if you have not paid the minimum due for 3 years, to continue investing in your PPF account you will need to pay a total fine of Rs 150/- (Rs 50/- for three years) and Rs 1500/- (the minimum Rs 500/- due for each year).
The repayment of the contribution with interest will be made only after 15 years from the end of the financial year in which the PPF account was opened.
Who should invest?
Anyone looking to take exposure to debt instruments must invest in the PPF. Where would you get an investment class that doesn’t tax you on the investments made, on the interest that you earn on such investments and on withdrawals as well.
Businessmen who don’t get an opportunity to contribute in a provident fund can use this avenue to save wealth. This can be an ideal retirement planning avenue if used properly – it is essentially a long term investment avenue.
PPF for NRIs
Yes NRIs (Non- Resident Indians) can invest in PPF account provided it was open before attaining NRI Status. The details for PPF for NRI is in the below mentioned separate article.
PPF for NRI – IS PPF & NSC Redundant for NRIs?
Other points to keep in mind :
There is hardly any risk attached with the PPF.
You get the convenience of investing lower amounts as and when you have the money. 12 contributions can be made in one year.
The PPF cannot be attached via a court order in case of insolvency or bankruptcy.
Nomination can be made in one or more names.
On death of PPF account holder, the nominees cannot keep on contributing on the name of the deceased person.
Once cannot have 2 PPF accounts. If found out, the second account will be closed and the principal refunded without any interest payout.
One cannot open a joint account with someone else.
I neevr knew about the last few comments tht you have mentioned. Thanks for the information. You also haven;t mentoined anywhere that PPF is actually a long term investment option though you have mentioned retirment, which coudl be short temr for some ppl.
I also thought that the rtae of interest is increased this year, isthat not the case ?
@Shilpi, No the PF rate has not increased. I have updated the article to include the fact that PPF is a long term investment class.
HI Radhey Sharma,
Thanks for the information. I didnt realise the last points which you have mentioned. Can you please reconfirm if the pending amount be made to the account and will we incur interest for the same.
Lots of other forums do say that you can transfer the money to the PPF A/c but interest would not be paid and they also say its a way of evading tax also buy keeping the money in PPF A/c.
Thanks Sharma,
Hi… first just to clarify that now I am managing the blog thewealthwisher.com, hence i am answering to your query..
Yes, on maturity, you can continue to keep your balance in PPF a/c and earn interest on it. These accounts are classified as “extended without contribution accounts”. Only catch is that you cannot deposit additional amount/contributions to such accounts.
Rgds
Madhupam
Hi Radhey ,
Thanks for nice article.Can you provide information about some other good risk free debt instruments?Since PPF is for 15 years , we can not totally rely on PPF?How good are debt Mutual Funds?
@Ravi Shankar, I will do an article on Debt Mutual Funds in this month. Please watch out for it.
@TheWealthWisher,
Thanks for that.
How much % of ones tax amount should be placed in PPF?suppose I need to save 1 lakh for tax exemption.How much money should I keep in PPF?
Thanks,
Ravi Shankar
@Ravi Shankar, There is no such defined %. The amount you put in depends on what your age is and what investment class suits you best.
A younger person could put all his money into tax saving mutual funds (ELSS) which will give him more returns than a PPF.
Having said that, I think that investments should not be made to save tax only. Tax saving should be achieved automatically while you invest.
If you have some extra money, do invest in PPF as everyone is advised to take exposure to debt however remember that its highly illiquid.
@TheWealthWisher,
Thanks Radhaey.
Suppose I started investing 25% of my taxable amount in PPF.
Does PPF beats inflation and provide me good returns after 30 years say my retirement?
@Ravi Shankar, PPF does not beat inflation at all. The only investment class that beats inflations is equity – stocks and equity diversified mutual funds.
For retirment, PPF is one tool you can use BUT NOT THE ONLY ONE – you need to invest in equity for retirment as it is a long temr goal – read my goal based investing article and you will understand.
Hope this helps.
@TheWealthWisher,
Its really helpful.Thanks a lot.
I will try to get some exposure on equities(shares and mutual funds).Can you write an article on how to begin investing in equities please?
@Ravi Shankarr, I will do that Ravi. Read this meanwhile : https://www.thewealthwisher.com/2010/07/12/two-ways-to-invest-in-equities/
PPF account can also be opened in certain private banks. ICICI Banks offer PPF accounts.
@S.Mukherjee, I am a bit unclear on this one. It is true that ICICI Bank used to offer PPF accounts. I am not sure whether it does today. Do you know ?
@TheWealthWisher, Well it is given in ICICI Bank website. Rang up the bank today and was told that in Kolkata, PPF accounts was serviced by only one branch, viz: their retail branch at R N Mukherjee Road.
@S.Mukherjee, Great ! That is good news. I somehow get bogged down by the service at SBI. I would expect ICICI to be better but that could be debatable.
Good post. However these give lower than inflation (thus negative) returns mostly 🙁
@S.Mukherjee – My experience with ICICI (not with PPF but with other products) hasn’t been good :(. I hear SBI’s branches are improving a lot…
@Ashish, I agree with Ashish. The returns are pathetic when inflation adjusted. What in your thought is a good debt instrument then Ashish which can beat inflation ?
Dear Sir,
I need a small information How to take Public Provident Fund Agentship my cell No.9849696322 can you suggest me
thank u Sir
rama murthy
Dear Sir
How to caluclate PPF amount yearly 12000/- Paid after 15 Years how much amount are returns
@B.RAMA MURTHY,
Here it is :
Year Deposit Interest Rate Accumulated Amount
1 12000 8% 12960
2 12000 8% 26957
3 12000 8% 42073
4 12000 8% 58399
5 12000 8% 76031
6 12000 8% 95074
7 12000 8% 115640
8 12000 8% 137851
9 12000 8% 161839
10 12000 8% 187746
11 12000 8% 215726
12 12000 8% 245944
13 12000 8% 278579
14 12000 8% 313825
15 12000 8% 351891
@B.RAMA MURTHY, Not sure about this. Can you make one ?
Plz solve following 2 queries: 1) After completion of 15years, if I dont redeem but dont extend it to 5 more years and just keep it in the PPF account, will it still be growing with prevailing PPF interest rate? 2) I already have a PPF account from Feb’11 , can my wife independently open 1 more PPF account on her name, she is a housewife so I’ll provide money for investing.
@Saurav, 1) Yes it will.
2) Yes you can open one in her name, however, across both PPF accounts you can invest only a max of Rs 70,000/- per annum (assuming she is a housewife).
@TheWealthWisher,
Saving from house hold expenses given to a wife for managing the home is regarded as income of the wife. Hence, the amount invested in PPF should be treated as her own income if the same is within a reasonable percentage of husband’s income. Correct me if I am wrong.
@abhay, I do not think money given to wife for managing the house is income for the wife. Same with PPF. It is allowed to be invested in wife’s name.
@Radhey Sharma,
The saving is income, not the money given to her for managing the house. Somebody should clear the rules regarding this. Honorable Supreme Court ruled recently that housewives cannot be treated as unemployed and they manage the homes. Hence, there should be some provision for the ladies who bring up the family and they have no income of their own in spite of working 200% more than the working ladies!
@abhay, Why are you saying the saving is income ? Its just that if this saving is used to generate FUTURE income, it gets clubbed with the husbands as the wife is not working. But I do not understand why you are saying that the money saved is income for the wife. It is not.
hi, well presented. I have queries like after 15years whatever return is there, will it be taxable,even if I do not redeem amount and keeping in account.please advice.
@Dipti, It won’t be taxable, even if you do not redeem.
The best part about Investing in PPF is that they accept Cash. So basically all your Black Money can be invested in Tax Saving Instrument and you also earn a healthy return on the same. This is one tip which CA’s have started advising to their clients.
@CA Karan Batra, Yeah that is very much right Karan !
I am not clear on amount that can be withdrawn from PPF account. Can you please elaborate a little? I have been investing Rs 70000 per annum since 2006-2007.
Regards,
Raj Alok
I think maxmimum limit under 80c in PPF can be taken as Rs. 100000.0 if I deposit Rs. 70000.0 in my account and reamining Rs. 30000.0 in my wife’s account. This limit of Rs. 70000.0 is set by PPF and not by Income TAx department.
Please offer your comments.
@P K GUPTA, Its 70k only. Where have you read as 1 lakh ?
@Radhey Sharma,
Sir,
Please see the following link
http://taxguru.in/income-tax/public-provident-fund-ppf-scheme-investment-limit-income-tax-benefit-features.html.
The text is reproduced here
==
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 70,000 in your account and Rs 70,000 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 70000/- is fixed by Public provident Fund Act not by Income Tax law.
==
Why is it not applicable for deposits to your major child/wife? Pl send your comments.
@P K GUPTA, Interesting. I think this is debatable and maybe a qualified tax consultant is the best person to ask !
Sir,
Further I may inform you in my FY 2011-12 ITAX return my CA at Ahmedabad showed saving of Rs. 90000.00 in PPF in my & wife’s accounts. I specifically asked him before depositing.
His ITAX return generation S/W permitted the same. This is additional info for u.
Thanks
P K Gupta
@P K GUPTA, I know for sure you can deposit any amount in PPF but I still think you can only get benefit of 70k under Sec 80C.
I want to know which scheme is better RD or PPF for the person whose age is 50yrs and she is a housewife.
Thanks and Regards
@sujit, Cannot be answered just like that – need more information before taking a call.
Liquidity might be a more important criteria for a 50 yr old and if yes FD is better than PPF.
How to transfer existing PPF account from post office to SBI?
Please provide the details.
@Rameshkumar K, I am not sure about this, best to check with SBI on what they need and then get it from the post office.
It is said Quote:
Q. Can the PPF account be attached by Tax Authorities?
A. Yes, the PPF account can be attached by the Income Tax and Estate Duty authorities. The PPF act only gives the account holder immunity against attachment under a decree / order of a court of law.
Unquote: Pl clarify on this whether ppf a/c of the assessee will be attached till it matures or it will be closed before maturity to honour Attachment Order Sec 226(3)& money will be sent immediately on receipt of the attachment order for ppf a/c of an assesee.
If yes, pl quote the reference circular/letters.
@RAJENDRA J PAWASKAR, Please touch base with a tax consultant for such a niche question and let us know on the same.
Nice article !
I’ve just dropped in my PPF account opening form at ICICI. If anyone of you are looking for opening a PPF account with ICICI:
1. There’s a new link “PPF Account online” that keeps flashing under your “My Accounts” page – click on it
2. A page with “Apply for a PPF account” appears. Click on that button.
3. Select your bank account (if you have multiple accounts linked), fill in your information and Application form and nomination form are available to download as PDF format upon submitting.
4. Print them out, paste your photograph, fill in the nomination details and carry your PAN proofs to ICICI.
Last week, I went to a nearby SBI branch for opening a PPF account but they insisted that I open a savings account without which a new PPF account isn’t possible. I am not sure if that’s true.
I was told it’d take about 10-20 working days for the account to be opened ! 20 working days ! Honestly, 20 is too much right ?
Thanks TheWealthWisher for your articles which prompted me to start reading about personal finance and I now bug my friends to think about it too. 🙂
@Rohit,
Thanks for sharing your views on opening PPF a/c with ICICI, it will surely help a lot of readers. As for SBI, even they told me to open a savings account with them and then they would open a PPF a/c, It took me a week for the entire procedure.
Thanks Rohit for sharing this.
Note that it is not mandatory to open a savings account with any bank before opening PPF account. This is just a trick played by all the banks and mostly people just go with it. If you resist long enough you might be able to get away with it.
Regarding the duration, expect such timelines from any government bank.
Private banks with their superior online banking technology will always have an edge over the government banks especially in the cities. ICICI seems to be the latest player in PPF I guess, so far I have heard only SBI and post offices opening PPF accounts. Let us know your experience with ICICI and their customer care while dealing with PPF account.
If one opens the account along with his minor son/daughter what will be its status after the child attains the age of 18 and becomes a major.Will it continue as such eg.parent continuing to get tax benifit or it will be on the name of the major child/ the benefit of tax 80c not ment for the parent.
@TheWealthWisher
Opening a PPF account with ICICI is very convenient but how safe is it investing in a private sector bank. If at any point ICICI closes its business, at this point does RBI have any rules of giving the PPF amount back to the customers? If so, yes ICICI is the best option.
The best option is one which you are happy with – who says SBI might not bite the dust ?
Go with ICICI if it is easy for you, it ain’t going down so quickly !
Hi,
I want to know whether the investing amount can increase after few years.
for example,
Once I started to deposit 1000rs per annum then can I increase the amount of investment like 2000rs per month
Sir,
Pls clarify my doubts,
at present my husband is working and his pf is deducted very month.But my doubt is that i am a house wife and i have a ppf account. can my ppf account be used for his income tax benifits? If so under which section is it applicable?