The Public Provident Fund (PPF) is a tax-free investment avenues which are open to all individuals. The Government had brought the scheme to encourage the saving and investment habits among the individuals. Originally the scheme was notified vide GSR 1136, dated 15-06-1968 and many amendments have been carried since then in the scheme. Now, the Government has notified a new scheme vide G.S.R. 915(E), dated 12-12-2019.
Amount deposited in PPF accounts are eligible for tax deduction under Section 80C. Interest earned on deposits in the PPF account are tax free. This makes the PPF one of the most tax efficient investments in India. The key features of the new scheme have been enumerated below.
1. How to open a Public Provident Fund?
PPF accounts can be opened at any nationalised bank, authorised bank and post offices. The PPF account can be opened by submitting the Form 1 along with the relevant documents and minimum deposit.
2. Limit on the number of accounts
An individual can open only one account in his name under PPF scheme. Additionally, an individual can also open one PPF account each in the name of a minor or a person of unsound mind of whom he is the guardian (legal or natural). It shall be noted that only one account shall be opened in the name of any minor or person of unsound mind by any of his guardian. Joint accounts cannot be opened under this scheme.
3. Deposits in the scheme
a) The account may be opened with an initial investment of Rs. 500 and in multiples of Rs. 50 thereafter;
b) Minimum deposit to be made in the account during every financial year shall be Rs. 500 and in multiples of Rs. 50 thereafter; and
c) Total amount deposited in an account shall not exceed Rs. 150,000 during a financial year. The limit shall include all the amounts deposited by the individual in his own account and in account opened on behalf of the minor.
If the depositor fails to deposit the minimum amount in the account in the following years, then such account shall be considered as discontinued. However, such account can be revived on payment of penalty of Rs. 50 for each year of default along with the minimum annual deposit in respect of years of default.
When a PPF account is considered as discontinued, the account holder shall not be eligible to open a new account before closure of such account after maturity. Further, the facility of loan and partial withdrawal shall not be available in this case.
Even if the discontinued account is not revived, the balance in such account shall continue to earn interest at the rate applicable to the scheme from time to time.
4. Interest on deposit
Interest on deposits made under this scheme shall be provided at the rate of 7.9% per annum. Interest shall be calculated for the calendar month on the lowest balance at the credit of an account between the close of fifth day and the last day of the month. The interest shall be credited to the account at the end of each financial year.
Applicable rate of interest in different periods
| Sr. No. | Relevant Period | Rate of Interest |
| 1. | April 1986 - January 2000 | 12.0% |
| 2. | January 2000 - February 2001 | 11.0% |
| 3. | March 2001 - February 2002 | 9.5% |
| 4. | March 2002 - February 2003 | 9.0% |
| 5. | March 2003 - November 2011 | 8.0% |
| 6. | December 2011 - March 2012 | 8.6% |
| 7. | April 2012 - March 2013 | 8.8% |
| 8. | April 2013 - March 2016 | 8.7% |
| 9. | April 2016 - September 2016 | 8.1% |
| 10. | October 2016 - March 2017 | 8.0% |
| 11. | April 2017 - June 2017 | 7.9% |
| 12. | July 2017 - December 2017 | 7.8% |
| 13. | January 2018 - March 2018 | 7.6% |
| 14. | April 2018 - September 2018 | 7.6% |
| 15. | October 2018 - March 2019 | 8.0% |
| 16. | April 2019 - June 2019 | 8.0% |
| 17. | July 2019 onwards | 7.9% |
5. Withdrawal from PPF account
5.1 When amount can be withdrawn?
The amount from the PPF account can be withdrawn before maturity only after the expiry of 5 years from the end of the year in which the account was opened. If the account is opened on behalf of a minor or person of unsound mind, then withdrawal can be made at any time for their benefit provided they are alive.
5.2 Limit on amount to be withdrawn
The amount that can be withdrawn from the PPF account, shall be maximum of 50% of the amount standing in the credit of the account at the end of the fourth year immediately preceding the year of withdrawal or at the end of the preceding year, whichever is lower.
Where after maturity, the account has been extended with deposits, total withdrawal during the block period of 5 years shall not exceed 60% of the balance at credit at the commencement of the block period. Such withdrawal can be made either in a single or in yearly installments. If, however, the account holder opts to extend the account without any further deposit, no additional withdrawal will be allowable.
5.3 How to withdraw the amount?
The application shall be made in Form-2. However, if the withdrawal is made from the account on behalf of a minor or person of unsound mind, then a certificate is required to be submitted by the guardian.
5.4 Other conditions
■ If account holder has obtained any loan against such account, he is required to repay the amount of loan outstanding including the interest due thereon before making application for such withdrawal;
■ The facility of withdrawal is available only once a year;
■ Withdrawal cannot be made from a discontinued account; and
■ Withdrawal cannot be made in case of extension of the account wherein the accountholder opts not to deposit any amount further.
6. Premature closure of account
The account holder shall be allowed to prematurely close his account or account opened on behalf of a minor or a person of unsound mind of whom he is a guardian, on or after the expiry of 5 years from the end of year in which the account was opened, in any of the following cases:
a) The amount is required for the purpose of treatment of life threatening disease of the account holder, his spouse or dependent children or parents, on production of supporting documents and medical reports confirming such disease from treating medical authority;
b) For the purpose of higher education of the account holder, or dependent children on production of documents and fee bills in confirmation of admission in a recognised institute of higher education in India or abroad;
c) If there is a change in residency status of the account holder on production of copy of Passport and Visa or Income tax return.
In case of premature closure, the interest whether credited or due shall be calculated at a rate which shall be 1% lower than the rate at which the interest has been credited in the account from time to time since the date of opening of the account. The application for premature closure of the account shall be filed in Form-5.
7. Closure of account
In the event of death of the account holder, the account shall be closed and no nominee or legal heir shall be allowed to continue the account. The balance including the interest calculated till the end of the month preceding the month in which the balance is deposited in the account, shall be paid to the nominee or legal heir as the case may be.
In other cases, the accountholder can at any time after the expiry of 15 years from the end of the year in which the account was opened, apply for the closure of the account by submitting an application in Form-3. Accountholder will be eligible to withdraw the whole amount along with the interest due up to the last day of the month preceding the month in which the account is closed.
8. Extension of account after maturity
8.1 Extension without making any additional deposit
The accountholder may opt not to close the account after its maturity and retain it without making any further deposit in the account. If the person opts to extend the account without making further deposits, and does not deposit any amount for more than a year, then he will not have the option to continue with the account with deposit. Interest will accrue on the amount lying in the account at the rate applicable to the scheme. The accountholder will have the benefit to withdraw the amount from the account at any time during the year. But such withdrawal can be made only once a year.
8.2 Extension of account with deposits after maturity
The accountholder has the option to extend the validity of his account for a further block of 5 years and make deposits therein. The person has to make application in Form-4 for this purpose.
The extension with deposits shall be allowed subject to fulfilment of following conditions:
a) The extension will be granted for a block of 5 years only. If accountholder opts to extend for more than 5 years, he may apply for another extension of a block of 5 years accordingly;
b) An application made for extension of the account, cannot be withdrawn subsequently;
c) The option for extension shall be exercised before expiry of 1 year from the maturity of the account. In case of failure of intimation as required above, any deposits made in the account shall be treated as irregular and will be refunded by the accounts office immediately without interest. However, the balance in the account on the date of maturity shall continue to earn interest up to the end of the month preceding the month of closure;
d) If account is continued with deposits for one or more five block periods, the account holder may leave the account without deposits on completion of any block period;
e) The application for extension of another block shall be made by the accountholder himself except in case of minor or person of unsound mind, wherein the application can be made at the request of the guardian;
f) All the provisions as applicable under normal deposit period shall also apply during the extended period;
g) Facility of partial withdrawal will be available during the extended time as well, provided the total amount withdrawn does not exceed 60% of the balance at credit at the commencement of the block period.
9. Loan against the PPF account
9.1 When can loan be obtained?
The account holder may apply for obtaining a loan, against the balance in PPF account, after expiry of one year from the end of the year in which the initial investment was made but before expiry of 5 years from the end of year in which initial investment was made. The loan can be applied by furnishing details in Form-2.
In case of the account opened on behalf of a minor or a person of unsound mind, the guardian may apply for obtaining loan provided the amount is to be utilized for the benefit of such person and he shall be alive at the time of making the application.
9.2 How much loan can be applied for?
The maximum amount for which the application for obtaining loan can be made is 25% of the amount standing in the credit of the account at the end of second year immediately preceding the year in which the loan was applied.
Example, Mr. X has made his initial investment on 01-01-2020 for an amount of Rs. 100,000. During the year 2020-21 he deposited Rs. 150,000. He will be eligible to apply for the loan on or after 01-04-2021. If he applies for loan on 15-09-2021, the maximum amount he can apply for will be Rs. 25,000 (Rs. 100,000 * 25%). In the Year 2022-23, the maximum loan can be obtained to the extent of Rs. 62,500 (Rs. 250,000 * 25%).
9.3 Other conditions for obtaining the loan
No additional loan will be granted to the account holder unless the earlier loan has been repaid in full together with interest thereon. Further, only one loan can be granted in a year.
9.4 Rate of interest
Interest shall be charged at the rate of 1% per annum of the principal for the period commencing from the first day of the month in which the loan is drawn up to the last day of the month in which the last installment of loan is repaid.
If the loan is not repaid within 36 months from the first day of the month following the month in which the loan was sanctioned, interest shall be charged at the rate of 6% per annum. Such interest shall be applicable from the first day of the month following the month in which the loan was obtained, to the last day of the month in which the loan is finally repaid.
9.5 Repayment of loan
Repayment of loan can be made in either lump sum or in installments. Repayment shall be done within 36 months from the first day of the month following the month in which the loan was sanctioned.
After the principal amount of the loan is fully repaid, the account holder shall pay interest in not more than 2 monthly installments. In case of default in payment of interest, the amount due shall stand to the debit of the holder's account at the end of each year. Following are the scenarios when the payment of interest shall be regarded as defaulted:
a) Interest on outstanding loan which is not paid before expiry of 36 months or paid partly;
b) Interest on loan is not paid in respect of the principal amount which has already been repaid.
In case of death of the accountholder, the amount of interest shall be paid by his nominee or the legal heir. Such amount can be adjusted from the balance in the account at the time of final closure of the account.
10. Protection against the attachment of balance
The amount standing the credit of the account shall not be liable to attachment under any order or decree of any court in respect of any debt or liability incurred by the account holder.
11. Can an NRI open account under this scheme?
The previous PPF scheme prohibited the non-residents from making any investment in the PPF. The new scheme does not contain any provision which prohibits the non-resident. Thus, it appears that any individual, whether resident or non-resident, can opt for this scheme.
However, to open an account under the scheme, the applicant is required to file an application in Form 1 which contains a declaration that the applicant is resident citizen of India. It is not clear how this residential status shall be determined - as per Section 6 of the Income-tax Act or Section 2(v)/2(w) of the FEMA Act.
Thus, if the applicant is a non-resident of India (under both the Act), he will not be eligible to sign such declaration. So inspite of removal of prohibition from the scheme, the Form-1 will restrict a non-resident citizen to sign and submit the application in Form 1. If at any time after opting for the scheme, the accountholder becomes a non-resident, then unlike the previous scheme he will not be required to close the accounts and he will be required to file a declaration to an accounts officer regarding his change in residency.
12. Tax treatment of investment in PPF
PPF deposits fall under the EEE (Exempt, Exempt, Exempt) tax category, which means an investor is not liable to pay tax at all three levels - investment, earning and withdrawal.
Investment made in PPF Scheme is eligible for deduction under Section 80C of the Income-tax Act. However, if any loan is taken against the PPF account, then any amount paid towards the repayment of such loan shall not be included in the contribution amount of PPF while determining the deduction under section 80C. Any amount withdrawn from the account is exempt from tax under Section 10(11).
