Photo by Valerie EverettI’ve already covered Pubic Provident Fund (PPF) in my earlier write ups. But there are still certain operational issues left unanswered. So this post is going to be your guide to PPF investing by answering almost every possible question about PPF. Here’s the list of commonly asked questions (FAQs) about PPF:
PPF Investing
Q-1: How much interest do I earn by investing in PPF scheme?
Ans: Since the year 2003-04, the rate of interest on PPF saving scheme is 8% p.a. compounded annually.
Q-2: How does PPF stand vis-à-vis NSC?
Ans: Investing in PPF certainly scores over investing in NSC. For more details see: Which is better between the PPF and the NSC?
Q-3: How can I make the most of my PPF account? What are the considerations to be kept in mind while investing in PPF?
Ans: There are certain tips and tricks you can use to make the most of your PPF account such as opening PPF account at the earliest, investing on regular basis rather than waiting till the end of the year, and investing before 5th of every month. For more of such tips see: 10 Practical Tips for investing in PPF.
Q-4: How do I calculate the interest on PPF?
Ans: Use PPF interest Calculator to calculate your PPF interest and maturity value.
Q-5: Why should I invest in PPF?
Ans: You must invest in a PPF because it is the best debt option after PF:
1. 8% p.a. tax-free returns in addition to section 80C deduction on deposits.
2. Option to invest regularly for long term and can be continued indefinitely even after maturity
3. Highest safety as it is a government- backed saving scheme.
4. Can’t be attached by any court.
5. Flexibility to invest varying amounts. You’re allowed to deposit in lump sum or in installments. Further, you can vary amount of installments as per your convenience and it is not necessary to deposit every month.
Making Contributions in PPF Account
Q-6: What is the maximum ceiling on deposit in PPF?
Ans: As per Section 80C of Income Tax --> no ceiling
As per PPF Rules --> Rs 70,000
Q-7: How many numbers of times can I make deposits in PPF account during a year?
Ans: You can deposit money in your PPF account either in lump sum or in installments which need not be of same amount. However, total number of deposits during a financial year can’t exceed twelve.
Q-8: Am I required to deposit money in my PPF account every year? What if I don’t?
Ans: Yes, a minimum deposit of Rs 500 is required every year. If you don’t, then your account will become inoperative.
PPF: Tax Benefits
Q-9: What are the tax benefits available on PPF scheme?
Ans: There are two benefits: first when you deposit money in your PPF account, you get entitled for tax deduction u/s 80C and as a result your taxable income stands reduced to that extent. The second tax benefit is that the interest earned on your PPF deposits is completely exempt from tax.
Q-10: Is it possible to avail Rs 1 lakh deduction under section 80C though we’re allowed to deposit maximum of Rs 70,000 under PPF rules?
Ans: Actually under the IT Act, there is no limit and even under PPF rules Rs 70,000 limit is meant for self a/c and minor a/c. It doesn’t include the contribution to the a/c of spouse and major children.
In other words, as per PPF rules, the total deposit in your own account and in the account of your minor child can’t exceed Rs 70,000 in a FY. But PPF rules doesn’t bar you from making additional deposit beyond the limit of Rs 70,000 in the account of your spouse or your major children and accordingly you can claim Rs 1 lakh tax deduction u/s 80C of IT Act.
Q-11: Who can claim section 80C benefit: the person in whose name the PPF a/c stands or the person who deposits money in the PPF account?
Ans: The person who makes the contribution to PPF is entitled for tax benefit. For example, if you invest your money in the PPF account of your spouse, you’ll be entitled to claim section 80C deduction instead of your spouse.
Q-12: Can I contribute to the PPF account of my parent’s and claim section 80C tax benefit?
Ans: No, you’re not allowed to claim tax benefits on the contribution made by you in the PPF account of your mother or father.
Q-13: Is it possible to avail section 80C benefit without making deposits in the PPF account?
Ans: Yes, but only from 7th financial year onwards. The trick is to make partial withdrawals (as mentioned below) and redeposit it in your PPF account.
PPF: Account Opening
Q-14: Is PAN compulsory to open a PPF account?
Ans: No, PAN is not compulsory.
Q-15: Can I open a joint PPF account?
Ans: No, joint PPF accounts are not allowed.
Q-16: Can I open a PPF account in the name of a minor?
Ans: Yes, if you’re a guardian.
PPF: Loans / Withdrawals before Maturity
Q-17: When can I start making partial withdrawals / loans from PPF?
Ans: Loan facility is available from 3rd year to 6th year. From 7th year onwards, you’re allowed to make partial withdrawals. Also note that once you become eligible for withdrawals, no loans are allowed.
The basic difference between the two is that unlike withdrawal facility, loan carries interest and is to be repaid.
Q-18: What is the process for applying for loans and partial withdrawals?
Ans: To avail loans you’ve to fill Form D and for making partial withdrawal from your PPF account, you’ve required to fill up Form C.Further the application should be accompanied with the passbook.
Q-19: How much can I borrow from PPF?
Ans: The amount of loan can’t exceed 25% of the balance at the end of 2nd immediately preceding year. For example, if you apply for loan in 4th financial year, then the maximum amount of loan you can avail is restricted to 25% of the balance at the end of 2nd FY.
Q-20: How much can I withdraw borrow from PPF?
Ans: You’re allowed to make one withdrawal each year after completion of six financial years (i.e., from the beginning of 7th FY). The amount of withdrawal can’t exceed
a.) 50% of the balance at the end of the 4th immediately preceding year, or
b.) 50% of the balance at the end of the immediately preceding year
which ever is lower.
Further, the amount of withdrawal gets reduced by the outstanding loan amount, if any.
For example, if the account was opened in 2004-2005 the first withdrawal can be made during 2010-2011. The amount of withdrawal will be the lower of:
i. 50% of the balance as on March 31, 2007, or
ii. 50% of the balance as on March 31, 2010
Q-21: Can I close the account before maturity?
Ans: No, the premature closure of PPF account is allowed only in case of death.
However there is an exception. Premature closure can be considered after the expiry of 5 years in case of genuine hardship .
PPF: Account Operation
Q-22: How can I change the nomination in my PPF Account?
Ans: By filling up Form F, you can apply for change of nomination in your PPF account.
Q-23: Can PPF account be transferred from one post-office / bank to another?
Ans: Yes, it is possible to transfer from one post office to another or one bank branch to another bank branch. Transfer from Post office to bank & vice versa is also possible. Finally inter bank transfer is also possible.
Q-24: My PPF account is currently inoperative? How do I reactivate it?
Ans: To revive and regularize your PPF account, you'll have to deposit Rs 500 for every year of non-payment along with a penalty of Rs 50 for each year of default.
Q-25: What if I don’t reactivate it?
Ans:The balance in your PPF account will continue to earn interest and repayment of the subscription with interest will be made to you on maturity. In other words, the restrictions are as follows:
1. You can neither apply for a loan nor for a premature withdrawal.
2. Before making any further investment, you’ll have to reactivate it.
Q-26: I’m the nominee of the PPF account of my spouse who expired recently? Can I continue to operate the account?
Ans: No, nominees are not allowed to operate the account of deceased subscriber. The account needs to be closed by submitting Form G together with proof of death.
However, as the account is closed on demand by the nominee, it continues to earn interest till the date of closure.
Q-27: What is the procedure to close the account if the deceased account holder forgot to make a nomination?
Ans: If balance is more than Rs 1 lakh, succession certificate is required.
But if the balance is up to Rs 1 lakh, it can be claimed by legal heirs by filing Form G along with i) a letter of indemnity, ii) an affidavit, iii) a letter of disclaimer on affidavit, iv) a death certificate.
Q-28: What if the minor attains majority before the maturity of PPF account?
Ans: Ex-minor will have to take over the operation of the PPF account by registering his signature (attested by the guardian).
PPF: Post Maturity Operation
Q-29: Can I continue to remain invested after the maturity period?
Ans: Yes, you can continue to remain invested after the initial maturity period of 16years. There are two options available:
-With further subscriptions: This option can be exercised only in writing and in a block of 5 years.
-Without further subscriptions: No conditions attached and no intimation required.
Q-30: How many maximum numbers of extensions are possible after the initial maturity of 16 years?
A: There is no limit imposed on the number of extensions. The only restriction is that every extension is for a block of 5 years in case of continuation with further subscriptions.
Q-31: Can I further invest during the extension period of 5 years?
Ans: Yes, provided you have exercised the option in writing by submitting Form H.
Q-32: What is the time limit of submission of Form H?
Ans: Form H is required to be submitted within a period of one year from the date of maturity.
Q-33: Can I make withdrawals during the period of extension?
Ans: In case you’ve exercised the option to continue the account with further subscriptions, you’re allowed to make one withdrawal per year but the total amount of withdrawal during the 5 year period can’t exceed 60% of the balance in your PPF account at the beginning of each extended period.
On the other hand, if you continue the account without subscription, then there’s no maximum limit imposed on the amount of withdrawal. You can withdraw even the entire amount. The only restriction is that only one withdrawal is allowed in a financial year.
PPF: NRIs
Q-34: I’m a NRI. Can I open a PPF account?
Ans: No, a non-resident Indian (NRI) is not allowed to open a PPF account.
Q-35: I opened a PPF account while I was a resident India. Subsequently, I attained the status of an NRI while the scheme is yet to mature. Now Can I operate it and make further investments?
Ans: Yes, an NRI can continue to make the deposits in the PPF account (which was opened while he was resident Indian) till the maturity.
Q-36: Can a NRI extend the term of his PPF account?
Ans: No, once the PPF account matures, NRI can’t make further extensions. In other words, post-maturity extension is not allowed to NRIs.
In next part, i'll explain the impact of DTC on your PPF investments.
Also see:
1. Salary TDS: FAQs
2. 10 Tips to Invest in PPF
3. Is PPF better than NSC?
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