Investment in Public Provident Fund (PPF) Accounts is a favourite tax saving option on account of relief under section 80C of Income Tax Act alongwith tax free interest on the investments. PPF accounts can be opened at designated branches of State Bank of India and its associate banks, all Head Post Offices and other designated Post Offices, and at designated branches of other nationalized banks. The salient features of PPF accounts are as under:
Who can open?
Any adult on his / her name or on minor's name in the capacity of guardian of the minor.
Minimum amount
Rs. 500/- per annum is required to be deposited.
The accounts in which deposits are not made for any reason are treated as discontinued accounts and such accounts cannot be closed before maturity.
The discontinued account can be activated by payment of the minimum deposit of Rs.500/- with default fee of Rs.50/- for each defaulted year.
Maximum amount
Rs. 70,000/- per annum
The depositor has flexibility and freedom for depositing any amount in a maximum 12 installments in a financial year.
Maturity period
15 years.
An Account, on the expiry of fifteen years, can be extended for a further period of five years at a time.
Interest Rate
The interest is paid as per the rates declared by the Government from time to time.
The current rate is 8% per annum.
The interest is compounded annually.
The interest for the month is calculated on the minimum balance available in the account from 5th of a month to the last date of the month.
Nomination facility
Available
Transferability
A PPF account can be transferred from a branch of State Bank of India or a nationalized bank to Post Office and vice versa and also from a branch of State Bank of India to a designated branch of Nationalized Bank.
A PPF account cannot be transferred from one person to another. Even in the case of death of a depositor, the nominee cannot continue the account.
Loan facility
A depositor can avail of loan facility in the third financial year from the financial year in which the account was opened.
Application in prescribed form is to be made for loan along with the pass book of the account.
In case, the loan is sought from minor's Account, the guardian has to make a declaration that the money is required for the use/benefit of the minor.
The loan can be taken up to 25% of the amount in the account at the end of the second year immediately preceding the year in which the loan is applied for.
The loan is repayable in lump sum or convenient installments. Where loan is repaid within 36 months, interest is charged at 1% and if it is not repaid within 36 months, the interest at the rate of 6% is charged on the outstanding balance. The interest is to be paid in not more than two installments after the loan amount is fully repaid.
Once the first loan is repaid, second loan can be obtained on same terms.
This facility is available till the end of 5th financial year from the end of the financial year in which initial subscription was made.
Withdrawal facility
A depositor can make partial withdrawals, once every year from his PPF account after expiry of five years, from the end of Financial Year, in which the initial deposit was made.
Application in prescribed form is to be made for withdrawal along with the pass book of the account.
In case, the withdrawal is sought from minor's Account, the guardian has to make a declaration that the money is required for the use/benefit of the minor.
The amount of withdrawal is restricted to 50% of the credit balance at the end of the fourth year immediately preceding the year of withdrawal or the year immediately preceding the year of withdrawal, whichever is lower.
In case of accounts extended beyond Maturity period are eligible partial withdrawals are allowed once in a year with the condition that the amount of withdrawal during a five year block period should not exceed 60% of the balance in the account at the commencement of the block period.
Premature Encashment
Premature closure of a PPF Account is not permissible except in the case of death of the depositor.
Deduction u/s 80C
Available
Interest Taxability
Interest income is totally tax free.
Other features
The benefits of exemption of interest from Income Tax is not available on deposits made in a PPF account after expiry of fifteen years without exercising option in writing for continuance of the account within one year.
PPF accounts can be opened and operated through an authorised agent appointed by the National Savings Organisation.
Only local cheques are accepted for deposit and the date of presentation of local cheque and demand draft is treated as date of deposit in the Account.
Balance in PPF account cannot be attached under court decree.
Entire deposit in a PPF account is exempt from the Wealth Tax.
The deposit in a minor account is clubbed with the deposit of the account of the guardian for the limit of Rs.70,000/-.
On death of the account holder his nominee(s)/legal heir(s) cannot continue the account. The account has to be closed in such case.
Deposits in excess of Rs.70,000/- in a financial year in a PPF account are refunded without interest and the excess amount is not considered for income tax rebate.
