Nov 17, 2010

PPF: 11 Pitfalls to Avoid


Public Provident Fund (PPF) is really very interesting and a great topic to write about. I’ve already mentioned practical tips to be kept in mind while opening and operating a PPF account. However, there are many pitfalls which you should avoid while investing in a PPF account.

Here’s a list of 11 things you need to be careful about while operating your Public Provident Fund Account:

1. Don’t open two PPF accounts in the name of one individual. Even if your current account is inactive, you’re not allowed to open a new PPF a/c.

2. Don’t deposit more than the maximum allowed. You won’t get the interest on excess deposit in your PPF account.

3. Don’t forget to
deposit a minimum amount of Rs 500 every year to avoid the PPF account become inoperative. You will be denied loans / partial withdrawal before maturity.

4. At the time of extension of PPF account, submit Form H, otherwise the continuation will be deemed as “extension without subscription” or “irregular” and you will be denied interest on additional deposits and also become ineligible to claim section 80C deduction.

5. Don’t forget to nominate, otherwise your family will have to obtain a succession certificate to receive the PPF proceeds in case of your death.

6. Avoid premature withdrawals and loans unless there is an emergency because PPF is one of the best long term saving instrument available to you.

7. Understand that post-maturity of PPF if you choose 'extension without further deposits', you can’t change it to 'continuation with further deposits' after the expiry of one year. So make an informed choice.

8. Don’t recycle the PPF account because it defeats the very purpose of opening a Public Provident Fund account.

9. After the subscriber’s death, nominee should consider closing the PPF account at the earliest instead of continuing it because a nominee can’t appoint a further nominee.

10. While making deposits in your PPF account at the end of the financial year for tax savings purpose ensure that you deposit the cheque / demand draft well in time…remember that date of realization is treated as date of deposit. If the cheque/draft is not encashed by 31st March, the amount will be treated as deposit for the next financial year and you will lose tax benefit for the current financial year. This is as per the amendment made by the Government of India in February 2010 in the Public Provident Fund Scheme. Earlier in case of PPF (unlike other small savings), date of presentation/tender of cheque was treated as date of deposit.

11. Don’t open a PPF account in the name of your HUF because vide an amendment made in the year 2005, PPF account can’t be opened in the name of HUFs although existing accounts are allowed to earn interest till their maturity.Besides, even the existing PPF Account in the name of HUF is not allowed any further extension after the initial maturity period of 16 years.


Finally, be aware of the rules and regulations regarding the correct operation of Public Provident Fund scheme as updated from time to time instead of relying on the advice of bank officials because in case of wrong advice you’ll have to bear the consequences… read this interesting incident mentioned by Ms. Sucheta Dalal in moneylife.


Also see:

1. Comparing PPF with NSC
2. How to invest in PPF
3. PPF Interest Calculator
4. Public Provident Fund FAQs

12 comments:

  1. Dear Fisher,

    Tahnks for giving detail dont's of PPF .I think you are writing This article after very long time .......I urge you again to blog as frequently as possible.....Great job. i am really happy to read this blog after such a long time .


    Regards,

    Dhaval Trivedi.

    ReplyDelete
  2. Thanks for the tips. You got all the necessary things that one has to keep in mind about ppf in this posting...Pension Finder

    ReplyDelete
  3. So Fisher's back after a long time?!! Really glad to stumble upon the blog once again :))

    My question: My prospective employer contributes 12% of my salary to PF. I had already opened a PPF last year. Can i continue to invest the bal fig (i.e 70,000 - Employer contbn) to my PPF account and claim deduction under 80C?

    Thanks & regards

    Ravi

    ReplyDelete
  4. hello Sir
    one of my ppf account is inactive an I opened a new ppf account now what to do?

    ReplyDelete
  5. Glad to see you back !Please Keep Writing.

    Regards
    Shankar

    ReplyDelete
  6. Dhaval, Ravi & Shankar: Thanks!


    Ravi,

    PPF is different from EPF.You can invest Rs 70,000 in your PPF account and claim tax deduction under section 80C but the total deduction under section 80C including EPF, PPF and other tax savings can't exceed Rs. 1 lakh.


    Dipankar,

    You should close your second PPF account and revive the first one.

    ReplyDelete
  7. I have a ppf account for some time now in the Post Office. Recently i noticed a mistake in calculation. The entries are done manually and i find at the end of every financial year the interest accrued is not 8%. Is it a calculation mistake or we get 8% only if the money is deposited in the first week of April?
    Thanks for your clarification.

    Rajlakshmi

    ReplyDelete
  8. Dear Sir,
    The very first thing that you say, "Don’t open two PPF accounts in the name of one individual" is not understood by me.Does it mean I should not open PPF ac in my name only?

    regards
    Sudhir

    ReplyDelete
  9. Raj Lakshmi,

    I can understand your confusion…interest rate of 8% means 8 per cent per annum. Let me clarify with an example…if you deposit Rs 100 in your PPF Account on, say, 2nd April, your account will get credited with Rs 8 as interest at the end of the financial year i.e. 31st March; now if instead of April, if you deposit Rs 100 in another month, say, 4th of July, then your PPF account will show interest of Rs 4 instead of Rs 8 because in second case your money remains invested for 6 months instead of 12 months.

    I hope you got the point…if still confused, please quote exact amount of money deposited and interest credited to your PPF account along with the relevant dates.


    Sudhir,

    There is no reason for any sort of confusion...it simply means an individual should open only one PPF account in his name. There are many instances where people delibrately open two PPF accounts at two different places so as to deposit more than Rs 70,000 in one year.

    There are also many cases when a PPF account becomes inoperative and instead of reviving it, another PPF Account is opened.

    ReplyDelete
  10. Your article on PPF was very informative. Thanks for the same. Regarding PPF, can you please provide the following information :

    1) My PPF account has matured on 31/03/2010, but I have not closed it till now. If I close it, say on 01/03/2011, at what rate will I get interest for the period from 31/03/2010 to 01/03/2011 ? 8% or 3.5% ?

    2) After maturity, if I want to choose option 9. b) of your above article i.e. "Continue the PPF account without making any further contribution", do I have to submit any form or application ?

    3) Do you have any updated information about the provisions of new direct tax code applicable to PPF ? Is the provision of EET going to be implemented from 01/04/2011 for PPF Accounts ?

    Please reply at the earliest.

    Thanks in advance.

    CBT

    ReplyDelete
  11. Dear Fisher,
    Great blog ! Keep it up.

    I have a one PPF A/c in my name & one PPF A/c in name of my minor son. Can I deposit Rs.70,000/- per annum, in each account (Total Rs,1,40,000/-).
    For IT purpose (Sec 80C) I will claim rebate of Rs.70,000/- only deposited in my PPF A/c.
    Kindly advise. Thanks in advance.
    Sunil

    ReplyDelete
  12. Mr.Fisher,
    my ppf account was operated for 15 years and further extended for 5 years each twice,with suscription.after which the state bank says the account will not be extended further.
    My queryis,
    Firstly can the account be extended further with suscription for next five years?
    Secondly,if not then can i withdraw the entire amount and again open a fresh ppf account with the regular norms of ppf?
    kindly advise.

    Thanks.
    PRADIP CAPOOR.

    ReplyDelete

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