The Public Provident Fund / PPF Scheme was started by the National Savings Organization in 1968 to promote small savings and investments. The Scheme offers an investment option with decent returns together with income tax benefits under Section 80C. In this article, we’ll look at the process involved in opening a PPF account.

 

1. Eligibility for opening a PPF account

1. Only an Indian resident can open a PPF account.

2. A person can open only one PPF account.

3. NRIs who had opened the PPF account while they were resident Indians can operate the account until 15 years with no option for extension.

4. Minors can open a PPF account based on a legal age proof.

5. HUFs cannot open PPFs after 13th May 2005. All PPF account prior to this date can be operated till the maturity period of 15 years with no extensions.

 

2. Steps to open a PPF account

A PPF account can be opened in only designated bank branches of SBI and its subsidiaries, ICICI Bank, Axis Bank.

Other banks where you can open a PPF account include

HDFC Bank, Central Bank of India, Bank of India (BOI), IDBI, Central bank of India, Punjab National Bank, Indian Overseas Bank, and few others.

Following are the documents required to open a PPF account :

1. PPF Account opening form available at the bank branch or the Indian Post portal.

2. ID proof that includes any of the following:

a) PAN card

b) Driving license

c) Voter ID card

d) Passport

e) Aadhaar Proof

For online applications, there are separate procedures for all the banks but the basic documentation and submission of application will remain the same.

3. Address proof, which can be any of the following:

a) Telephone bill

b) Electricity bill

c) Ration card

d) Aadhaar Card

4. Two current passport size photographs

5. Pay-in-slip at the bank branch to transfer the amount to your PPF account or a signed cheque in favor of your PPF account.

6. For a minor, a birth certificate may also be required as an age proof

Please note that all documents have to be self-attested and originals have to be taken while opening the account.

 

3. Benefits of opening a PPF account

1. Risk-free Interest rate: An attractive interest rate of 8% with a scheme backed by the Central Government

2. Compounded interest rate: The interest rate on PPF is compounded annually. Interest is paid on the 31st of March every year.

3. Tax Deduction: Deductions under section 80C at Rs 1.5 lacs on investment in the PPF account.

4. Good long-term investment of 15 years

5. Loans against PPF balance: Loans can be availed between the 3rd to the 6th financial year

6. Low Investment token: Deposit Amount ranges from a minimum of Rs.500 to a maximum Rs.1,50,000 in one financial year

7. Extension of a PPF account: Account can be extended in a block period of 5 years after maturity

8. Withdrawal Facility: Partial withdrawal facility can be availed from the 7th financial year onwards.

4. Interest rates of PPF

The following table represents the interest rate set by the Central Government in the recent past.

Financial Year

Interest rate (Per Annum)

2018-2019

8.0%

2017-2018

7.8%

2016 – 2017

8.0%

2015 – 2016

8.7%

2014 – 2015

8.7%

2013 – 2014

8.7%

2012 – 2013

8.8%

2011 – 2012

8.6%

2010 – 2011

8.0%

2009 – 2010

8.0%

2008 – 2009

8.0%

2007 – 2008

8.0%

2006 – 2007

8.0%

2005 – 2006

8.0%

 

5. PPF account for a minor

A PPF account can be opened by a parent on behalf of his/her child. Both the parents cannot open a separate PPF account for the same child. An individual can hence open one PPF account on behalf of each minor child of whom he/she is the guardian.

Grandparents are not permitted to open a PPF for their grandchildren when the parents of the minor are still alive.

Birth Certificate is also a document required for minors as an age proof.

 

6. List of all forms in a PPF account

The following table represents all the forms which are related to the PPF account.

List of Forms

Nature of the Form

Form A For opening a Public Provident Fund account
Form B For making deposits in the PPF account and repaying the loans against the PPF account
Form C For partial withdrawals from the PPF account
Form D To apply for a loan against the PPF account
Form E Adding a nominee for the PPF account
Form F Changing the nomination for the PPF account
Form G For claiming of funds in  a PPF account by a nominee or the legal heir
Form H For extending the maturity of the PPF account (1 or 5 years)

 

7. Pre-Mature closure of PPF account

Premature closure of PPF account is allowed only after completion of 5 years for the purpose of medical treatment of family members, and for higher education of only the PPF account holder. The premature closure comes with an interest rate penalty of 1%.

 

8. Transfer of a PPF account

The PPF account can be transferred to any other branch or any other bank or Post Office on the request of the PPF account holder. This service is free of charge.

Step 1 – Approach the bank or post office branch where the PPF account is held and ask for the necessary form to be filled.

Step 2 – The existing bank will then forward the certified copy of the account, nomination form, the account opening application, and specimen signature along with the cheque/dd for the outstanding amount in the PPF account to the new bank at the branch specified by the customer.

Step 3 – Once the new bank branch or post office receives these documents, they will inform and will ask you to submit a new PPF account opening form along with the old PPF passbook. A new nominee can be submitted as well.

Step 4 – Check in a couple of weeks that the transferred PPF account now shows up under the PPF account tab/link in the log-in of your internet banking id, if not then inquire at the local bank branch or the local post office branch.

 

9. Inactivation and Reactivation of PPF account

Money has to be deposited or invested each year to keep a PPF account active. The minimum requirement of Rs.500 should be met each financial year, if not then the PPF account from that financial year is deemed inactive.

Loan facility cannot be availed when the PPF account is inactive.

To reactivate the PPF account an account holder has to pay a penalty of Rs.50 per year of inactivation and the minimum amount cumulative for each inactive year as well.

For example, if the account has been inactive from year 4 to year 7 and now if we want to reactivate the account in year 8, then a penalty of Rs 50 for 4 years has to be paid ie Rs 200 (Rs 50*4 years).

Deposit amount – Rs 500 * 4 years = Rs 2000 needs to be deposited as well along with the penalty of Rs 200.

 

10. Tax implications on a PPF account

PPF falls under EEE (Exempt, Exempt, Exempt) tax basket. Investments into the PPF account are eligible for tax benefits under Section 80C of the Income Tax Act, for up to a maximum of 1.5 lacs per annum. The total amount received upon maturity and the interest earned are both exempted from income tax. Contributions to the PPF accounts of the spouse and children are also eligible for tax deduction.

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