| Public Provident Fund as described in it's official document is the scheme of Central Government of India which came into force from 1st July, 1968. It is governed by Public Provident Fund Act, 1968 (23 of 1968). PPF is made up of voluntary contribution made by an individual with the objective of building a corpus and avail the tax benefits. Unlike PF, this does not entail any employer contribution. Contributions made to PPF can be claimed as deductions under section 80C of the Income Tax Act, subject to the overall limit of Rs. 1 lakh. On maturity, the proceeds received are tax-free as well, making it the most attractive and popular avenue for retirement planning. We can't ignore the fact that, presently the bank FD rate is in the range of 9-10%, it is likely to go up in the near future also, in this scenario mostly those who falls in the high income tax bracket can opt for PPF investment and others can go for Bank FD in case they are able to lock their deposit at higher rate for longer period and also they do not want claim tax rebate. Like PF, this scheme can be used during financial emergencies by way of partial withdrawal or loan subject to the following conditions. a) A subscriber can take a loan from the fund in case of need. The first loan can be taken in the third year of opening the account i.e., if the account is opened during the year 2010-2011, the first loan can be taken during the year 1012-2013. The amount of loan will be restricted to 25% of the balance including interest for the year 2010-2011 in the account as on 31-03-2011.
b) A subscriber can make one withdrawal during any one year. The first withdrawal can be made at any time after the expiry of 5 full financial years from the end of the year in which the initial subscription was made (i.e. from the 7th year onwards). The amount of withdrawal will be limited to 50% of the balance at credit at the end of the 4th year immediately preceding the year in which the amount is withdrawn or at the end of the preceding year whichever is lower. For example, if the account is opened in 2010-2011and first withdrawal is made during 2016-2017 the amount of withdrawal will be limited to 50% of the balance as on 31-03-2013 or 31-03-2016 whichever is lower, less the amount of loan if any drawn and which remains to be re-paid. The amount of withdrawal is not repayable. The balance as on 31-03-2013 or 31-03-2016 will include interest upto year 2012-2013 or 2015-2016 as case may be.
- The Scheme is for 15 years.
- The rate of interest is 8% compounded annually.
- The minimum deposit is 500/- and maximum is Rs. 70,000/- in a financial year.
- One deposit with a minimum amount of Rs.500/- is mandatory in each financial year.
- The deposit can be in lumpsum or in convenient installments, not more than 12 Installments in a year or two installments in a month subject to total deposit of Rs.70,000/-.
- It is not necessary to make a deposit in every month of the year. The amount of deposit can be varied to suit the convenience of the account holders.
- The account in which deposits are not made for any reasons is treated as discontinued account and such account can not be closed before maturity.
- The discontinued account can be activated by payment of minimum deposit of Rs.500/- with default fee of Rs.50/- for each defaulted year.
- Account can be opened by an individual or a minor through the guardian.
- Joint account is not permissible.
- A Power of attorney holder can neither open or operate a PPF account.
- The grand father/mother cannot open a PPF behalf of their minor
grand son/daughter. - The deposits shall be in multiple of Rs.5/- subject to minimum amount of Rs.500/-.
- The deposit in a minor account is clubbed with the deposit of the account of the Guardian for the limit of Rs.70,000/-.
- No maximum age is prescribed for opening a PPF account.
- Interest is not contractual but rate is notified by Ministry of Finance, Govt. of India, at the end of each year.
- Pre-mature closure of a PPF Account is not permissible except in case of death.
- Nominee/legal heir of PPF Account holder on death of the account holder can not continue the account, but account had to be closed.
- The account holder has an option to extend the PPF account for any period in a block of 5 years on each time.
- 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.
- One withdrawal in each financial year is also admissible in such account.
- The PPF scheme is operated through Post Office and Nationalized banks.
- PPF account can be opened either in Post Office or in a Bank.
- Account is transferable from one Post office to another and from Post office to Bank and from Bank to Post office.
- Account is transferable from one Bank to another bank as well as within the bank to any branch.
- Deposits in PPF qualify for rebate under section 80-C of Income Tax Act.
- The interest on deposits is totally tax free.
- Deposits are exempt from wealth tax.
- The balance amount in PPF in PPF account is not subject to attachment under any order or decree of court in respect of any debt or liability.
- Nomination facility available.
- You can have only one PPF account in your name. If at any point it is detected that you have two accounts, the second account you have opened will be closed, and you will be refunded only the principal amount, not the interest.
- When you open an account, you will be given a passbook in which all subscriptions, interest accrued, withdrawals and loans are recorded.
- Those having General Provident Fund or Employees' Provident Fund Account can also open a Public Provident Fund Account.
- Interest is computed on the minimum balance between the 5th and end of a month. If you are investing a lump sum to save tax, deposit the amount before March 5 of the year.
- The balance in the PPF account can't offer as collateral to take a loan
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