12 Mins

Introduction

PPF scheme is a quite popular scheme among investors. The Public Provident Fund PPF Scheme was launched by the National Savings Institute in 1968. The Government of India backs this scheme. Hence, the returns are guaranteed. The investment and interest earned from the PPF scheme are also exempted under Section 80C of the Income Tax Act. Therefore, this scheme is one of India’s most tax saving and popular money-saving schemes. 

Here, in this article, we will provide a complete guide on PPF rules, i.e. rules related to account opening, closure and withdrawal. 

PPF Account Rules

The National Savings Institute of the Ministry of Finance launched the PPF scheme in 1968 to encourage savings among people. Public Provident Fund PPF is a long term tax saving cum investment instrument. For a long time, PPF is a safe and popular saving scheme that offers tax benefits. Crores of Indians rely on it to achieve goals such as children’s higher education, marriage or retirement planning. However, every individual must keep in mind the rules of PPF account before investing. The following are the rules for PPF account – 

Eligibility 

All the resident Indians can open a PPF account. However, an investor can hold only one account in their name or open a second account on behalf of a minor. Also, one cannot open a PPF account jointly. It can only be held in the name of one person. Furthermore, Hindu Undivided Families (HUFs) and Non-Resident Indians (NRIs) cannot open a PPF account. However, NRIs opened PPF accounts when they were resident Indians and can continue to operate until maturity. But, they will not be allowed to seek extensions. 

Moreover, if an investor opens an account in their name and their child’s name, a total amount that they can invest (in both accounts together) is Rs. 1.5 lakh in a financial year. 

Maturity

The PPF account lock in period is 15 years which can be extended. If there is no fund requirement, it is always advisable to extend the account beyond 15 years. The account holder has an option to extend the duration by a block of 5 years. 

An investor can always retain their account after maturity without making further deposits for any period. They will continue to earn interest on the balance until the account is closed. Moreover, there is no limit on the number of times that an investor can extend their account. 

Nomination

The account holder can nominate more than one person. If they choose to nominate more than one person, they need to mention the percentage of shares. Also, the shares of all nominees should add up to 100 per cent. Furthermore, if the account is opened on behalf of a minor, a nomination facility is not provided. 

Where to open

Any individual can open a PPF either at a post office or bank by submitting the necessary documents required. . Initially, only nationalised banks like the State Bank of India (SBI), Punjab National Bank (PNB), etc. were authorised to provide PPF facility. Some private banks like HDFC Bank, ICICI Bank and Axis Bank are now allowed to provide PPF facility. Moreover, the PPF rules in post office is the same as of a bank. 

Account Transfer

One can transfer their PPF account from bank to a post office and vice versa. Also, the account can be transferred between the branches of the same bank/post office. They need to submit a transfer request at the home branch. Along with the transfer request, the following documents also have to be submitted – 

  • Nomination form
  • PPF passbook
  • Certified copy of the account
  • Orginal account opening application form.
  • A demand draft or cheque for the outstanding balance

The new branch verifies and notifies the receipt of the form. 

PPF account deposit rules

There are an ample number of ways through which an individual can deposit money into their PPF account. The amount can be deposited through demand draft(DD), cash, cheque, or online fund transfer. One can visit the PPF official website and login to make an online deposit into their account. The following are the PPF deposit rules – 

Minimum deposit in PPF account per year 

The PPF minimum deposit is Rs.500. As per the PPF latest rules, an individual can make deposits in multiples of INR 50 any number of times. 

The maximum investment in PPF

The PPF investment limit in a financial year is Rs. 1.5 lakh. If the deposit amount exceeds Rs. 1.5 lakh, the transaction will be rejected automatically. Earlier, the number of deposits was capped at 12 in a financial year. As per the recent changes, an individual can make any number of deposits in a financial year. 

Rate of Interest (PPF interest rules)

The Ministry of Finance announces the PPF interest rate every quarter. The current PPF interest rate is 7.10%. The Finance Ministry has kept the interest rate unchanged from the last quarter. Although the interest is calculated every month, it gets credited to the account on 31st March every year. Also, the interest amount is determined based on the PPF account balance. The PPF interest is calculated based on the minimum balance in an investor’s account between the 5th day and the last of every month. Therefore, it is always advisable to make PPF deposits on or before the 5th of the particular month. Hence, this will help the account holder to earn interest on the deposit amount for the entire month.

For instance, the investor has a balance of INR 1 lakh in PPF account on 30th April.  Now, the investor has deposited INR 10,000 on 3rd May and INR 5000 on 21st May. The interest on the fund for the month may be calculated on INR 1.10 lakh and not on INR 1.15 lakh.

PPF Withdrawal rules

One can make partial withdrawal after a given number of years or a complete withdrawal after the maturity period. 

Withdrawal post maturity

At the time of withdrawal after 15 years, the account holder has the following options. 

Complete withdrawal

The PPF scheme has a lock in period of 15 years. At the end of the tenure, investors can choose to withdraw their entire investment. The same gets credited in the savings account. Investors need to submit Form C at the post office or bank where the account is held to terminate it. 

PPF account extension without contributions

Investors can also keep their account active without making further deposits for any amount of time. Interest will continue to accrue on the balance until the account is closed. However, investors are allowed to make one withdrawal in a financial year. There is no limit on the amount that can be withdrawn

PPF account extension with contributions

In case the account holder wants to keep the account active and continue to make contributions, they can apply for an extension of their account in a block of 5 years. Also, there is no limit on the number of times that one can extend the duration of their PPF account in their lifetime. After the 15th year, they can maintain the account with or without contributions. They will have to submit Form 15H  to extend their PPF account’s duration within one year on the account’s maturity. The account holder is allowed one withdrawal each year during the extended period. However, an account holder cannot withdraw more than 60 per cent of the total balance reflecting at the beginning of the extension period. 

If the account holder continues to make deposits without submitting Form 15H, the deposits made after maturity will not earn interest. These deposits will also not qualify for deduction under Section 80C of the Income Tax Act,1961. Furthermore, during the extension period, the minimum PPF contribution remains the same as mentioned above. 

Premature withdrawal

Investors can partially withdraw their investment from PPF accounts. However, there are specific rules on partial withdrawals. Premature withdrawals are allowed only after completion of 5 years from the end of the year. For instance, if the PPF account was started in Feb 2012, then the investor can begin making their partial withdrawals from the financial year 2017-2018. 

However, the investor cannot withdraw the entire amount from their PPF account. There is a cap on the amount that can be withdrawn. Only 50% of the PPF balance at the end of 4th year financial or 50% of the balance at the end of the preceding year, whichever is lower. 

One can withdraw 50% of the corpus at the end of the fourth financial year (FY2015) or the preceding year (FY2019); whichever amount is lower. As per the table:

  • Corpus at the end of FY2015 is ₹2.40 lakh, so 50% of that amount is ₹1.20 lakh.
  • Corpus at the end of FY2019 is ₹6.90 lakh, so 50% of that amount is ₹3.45 lakh.
  • This means withdrawal amount ₹1.20 lakh in 2020.
YearInvestment amount (in ₹)Total corpus (In ₹)
201250,00050,000
201350,0001,00,000
201460,0001,60,000
201580,0002,40,000
20161,50,0003,90,000
201790,0004,80,000
20181,00,0005,80,000
20191,10,0006,90,000

Account closure rules

An investor can close their PPF account before maturity or after maturity. 

Premature closure of an account

Investors can opt for premature closure of their PPF account. However, only under certain conditions, the account closure is allowed. They are – 

  • Firstly, premature closure of PPF accounts is possible only after five years from the account opening year. 
  • If the account holder, spouse, or children are affected by a life-threatening disease, they can opt for a premature PPF account closure. However, they need to submit the relevant documents and medical reports to prove the same. 
  • If account holders need funds for higher education, then they can opt for premature closure. However, the have to submit relevant documents, such as fee receipts, admission confirmation letter, etc. 
  • If the account holder changes his/her residency status, the account can be prematurely closed. To attest the residency status change, a copy of passport, visa or income tax return needs to be submitted. 

In case of premature closure of PPF account, the account holder receives a 1% lower interest rate than the prevailing PPF interest rate. 

PPF account closure post maturity

Every PPF account has a validity of 15 years, also known as its maturity period. Once the PPF account matures, the investor can withdraw the entire balance and close the account or extend it for a block of 5 years. If the investor has a cash crush or immediate financial needs, they can apply for PPF account closure. The maturity proceeds will be transferred to the savings account after submitting Form C. Also, the investor has to submit original passbook and cancelled cheque along with the signed form. 

Income Tax Rules

The Public Provident Fund investments fall under the Exempt – Exempt – Exempt (EEE) category. This means that the investments, interest and redemptions are all tax exempted. Thus, this scheme offers multiple tax benefits to individuals.

Tax on Interest

The interest that the investor earns from investment in PPF scheme is exempted from tax. 

Tax on Maturity

The final corpus that the investor accumulates at the end of the maturity period is also exempted from tax.

Deduction at the time of investment

The PPF exemption limit is INR 1,50,000 per annum and qualifies for tax deductions under Section 80C of the Income Tax Act. Investors, while filing their income tax returns can declare their PPF investments to the avail tax benefit.

Tax on premature withdrawal

In case, the investor withdraws prematurely from the PPF account; the accumulated amount is tax-free in the hands of the investor. Also, the interest earned during this duration is exempted from tax. 

Conclusion

The Public Provident Fund PPF scheme is a safe investment instrument for tax saving purposes. The Government of India backs the PPF scheme. Thus, the returns are guaranteed from such investments. Investors with low risk tolerance level and looking for fixed returns then PPF is a good option. This scheme offers multiple tax benefits to investors. In other words, individuals have no tax on PPF investment. Individuals can choose PPF for tax exemption under section 80C. To know more details, one can always visit the PPF official site. 

Frequently Asked Questions

What is the minimum lock in period for PPF account?

The PPF minimum lock in period is 15 years. 

What is the maximum limit of deposit in PPF account?

The PPF maximum limit of deposit is INR 1,50,000. This is also the maximum amount where one can avail the tax benefit. 

How much amount can be deposited in PPF in a year?

According to the PPF new rules, an investor can deposit money in a PPF account in multiples of INR 50 any number of times in a financial year. The maximum amount that can be deposited in a year is Rs. 1.5 lakh. Earlier, a maximum limit for PPF was 12 deposits in a year. 

What is the current interest rate of the Public Provident Fund scheme?

The current interest rate of the Public Provident Fund scheme is 7.10%. The interest rate is changed by the government every quarter.

Can I withdraw my PPF before maturity?

PPF account can be withdrawn after completion of 5 years. However, the amount can be withdrawn after five years of active PPF contribution. 

Is there any limit on deposits in PPF accounts?

The PPF account deposit limit is Rs. 1.5 lakh. Any amount over that will be rejected automatically and not earn any interest. 

Where to open a PPF account?

To open a PPF account, one can visit a post office or bank. Many private banks are offering this facility.