Government notifies PPF Scheme 2019, makes some tweaks

Public Provident Fund ( PPF) was initially introduced in India in 1968, which is now overruled by the new scheme introduced by Central Government on 12^th December, 2019 i.e Public Provident Fund Scheme, 2019

The Central Government of India Introduced the scheme of Public Provident Fund (PPF) Scheme initially in 1968 in order to mobilize small-large savings in the form of investments with reasonable returns along with income tax benefits. The Central Government has overruled the old scheme of PPF by the new Scheme on 12^th December 2019 video Notification No. G.S.R. 915(E). In India, PPF is considered as the most reliable investment scheme among all the existing tax saving investment schemes.

This scheme comes under the purview of “EEE” category, which stands for “Exempt, Exempt and Exempt”. It means that amount invested in this scheme is exempted from tax liability at 3 occasions that are

The amount invested annually is exempted from income tax liability of that financial year – as the PPF investor can claim deduction on his total income under Section 80C of the IT Act, 1961.
The total maturity amount received at the time of closure of account shall also be tax free in the hand of investor.
The interest earned and received at the time of closure of account shall also be tax free in the hand of investor.

In this blog we will discuss all the aspects related to PPF Scheme as per provisions under PPF Scheme, 2019.

Table of Contents

Who is eligible to invest & take benefit under PPF Scheme, 2019?

All Indian citizens (major and sound minded) are eligible to open a PPF account in his name under the PPF Scheme, 2019.

However, in case of minor or unsound person, a guardian has to open a PPF account in the name of minor or unsound person.

Key Points:

No joint accounts shall be opened under the scheme.
PPF account can be opened by making an Application in Form 1 under the scheme.
Only one account in the name of minor or unsound person can be opened at once.

What is the minimum and maximum deposit limit for PPF?

Minimum amount for initial subscription of PPF

Rs. 500/-

Minimum amount that can be deposited in one financial year

Rs. 500/-

Maximum amount that can be deposited in one financial year

Rs.1,50,000/-

*The point to note is that deposit can also be made in multiple of Rs.50

What interest rate is applicable on PPF?

At present, the interest rate is 7.10% for F.Y. 2020-21. However, this interest rate keeps on changing by the government, by notifying from time to time in its official gazette.

Furthermore, the interest amount shall be credited to the account of the investor at the end of the each financial year.

Loan under PPF Scheme

The account holder of the PPF can also obtain loan under PPF Scheme when following conditions are satisfied-

The account holder can apply for loan in Form 2.
He can apply at any time after the expiry of 1 year from the end of the year in which initial subscription was made but before the expiry of 5 years from the end of the year in which initial subscription was made.
However, the accountholder can apply for loan to the amount not exceeding 25% of the total amount balance at the end of the 2^nd year immediately preceding a year in which such loan is being applied.
The guardian of minor or unsound person can also obtain loan under the scheme for the benefit of the minor or unsound person, provided that other conditions shall be satisfied.

How to withdraw funds from PPF Account?

The PPF accountholder can withdraw an amount from his PPF Account at any time after the end of 5 years from the expiry of the year of opening of bank account.

Provided that, the account-holder cannot withdraw the full amount rather he can withdraw only up-to 50% of the total amount standing credit in his account at the end of the 4^th year immediately preceding the withdrawal year or at the end of the preceding year, whichever is the lower.
Furthermore, the account holder must pay the outstanding amount if any, in order to make such withdrawal.
The withdrawal facility is available only once in a year and that to those who have not discontinued their accounts.

Likewise, the guardian of the minor or unsound person can also withdraw the amount from minor’s or unsound person’s account for their benefit only.

What is the lock-in period of PPF account?

The lock-in period of PPF account is 15 years. It means that the PPF account shall be matured after the expiry of 15 years from the end of the year in which such account was opened.

How to close the PPF account before the expiry of lock-in period of 15 years under PPF Scheme, 2019?

The accountholder of PPF account can also close his PPF account even before its term that is premature closure only on following grounds –

When the residency status of either the accountholder or his dependent children has been changed, or
When the accountholder or his dependent children pursue higher education, or
For the treatment of any life threatening disease either of the accountholder or his spouse or his dependent children or parents.

Provided that, premature closure of PPF account is allowed only after the expiry of 5 years from the year in which it was opened.

For this, the accountholder has to make an application in Form-5.

Extension of term of PPF Account beyond 15 years

The PPF account shall be opened for 15 years lock-in period. However, it may be extended for further period of 5 years after the expiry of its maturity period and so on.

The option to extend the term of PPF account can be exercised only by the accountholder and that to before expiry of 1 year from the maturity of the account.

How to close the PPF Account?

The accountholder can close his PPF account at any time after the expiry of lock-in period of 15 years from the year in which such account was opened.

The accountholder has to apply in Form-3 for the account closure and withdraw of total amount along with interest at the time of closure.

However, the accountholder has an option to not making any deposit after the expiry of 15 years and to continue to keep the maturity proceeds along with the interest amount in the account only. It will continue to earn interest on such account balance.

List of Forms related to PPF Account

Forms	Applicability
Form-1	To open a PPF Account
Form-2	· To obtain Loan, or · To Withdraw amount from PPF Account
Form-3	To close the PPF Account
Form-4	To extend the validity of PPF account
Form-5	To close the PPF Account prematurely

Conclusion

The PPF Scheme has emerged as the social investment scheme as it provides higher interest rates as compared to other investment and saving schemes. This scheme helps the investors to utilize the investments with high interest amount at the time of retirement. It not only provides investment benefits but also tax benefits in the hand of investor.

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