Overview
It is an investment option available to Indian individuals. It may help the subscriber to avoid tax, and save money regularly over a period of 15 years.
Individuals have the option to open a public provident fund account in any scheduled commercial bank in India or any branch of India Post aka Bharatiya Daak or Daak Ghar/Post Office in common parlance. The necessary documents that one may require to open this account is the PAN number and address proof along with a recent passport size photograph. This account can also be opened in the name of one's legal ward. It means a legal guardian or parent may open this account in the name of one's child. However, the total contribution in both accounts should not exceed Rs.150,000 at present. The rate of interest is normally higher than the rates offered by scheduled commercial banks on time deposit (fixed deposit). Interest earned on this account is also tax free; and the maturity proceeds after 15 years is also not taxable. Therefore, it is suitably called to be an EEE investment option. EEE stands for exempt, exempt, exempt. It means when you invest into it you save tax; when you earn interest on it you don't have to pay any tax on this income; and when you receive the maturity proceeds you don't have to pay any tax on any sum so received.
The following frequently asked questions and their answers would make the matter clearer.
Individuals have the option to open a public provident fund account in any scheduled commercial bank in India or any branch of India Post aka Bharatiya Daak or Daak Ghar/Post Office in common parlance. The necessary documents that one may require to open this account is the PAN number and address proof along with a recent passport size photograph. This account can also be opened in the name of one's legal ward. It means a legal guardian or parent may open this account in the name of one's child. However, the total contribution in both accounts should not exceed Rs.150,000 at present. The rate of interest is normally higher than the rates offered by scheduled commercial banks on time deposit (fixed deposit). Interest earned on this account is also tax free; and the maturity proceeds after 15 years is also not taxable. Therefore, it is suitably called to be an EEE investment option. EEE stands for exempt, exempt, exempt. It means when you invest into it you save tax; when you earn interest on it you don't have to pay any tax on this income; and when you receive the maturity proceeds you don't have to pay any tax on any sum so received.
The following frequently asked questions and their answers would make the matter clearer.
Q. Who are eligible?
A. Any Indian individual can open a PPF account in their name or in the name of their legal ward, i.e. their children. Only 1 guardian can open only 1 account in the name of 1 child.
Q. Where can one open this account? What documents are required?
A. Most of the branches of India Post or SBI, and a few select branches of all the scheduled banks, e.g. ICICI, IDBI, etc.
Address proof, ID proof, 1 photograph. PAN is not mandatory in case of minor subscriber. In case of a minor the date of birth proof of the minor and the above stated documents of the guardian are required to open this account.
Address proof, ID proof, 1 photograph. PAN is not mandatory in case of minor subscriber. In case of a minor the date of birth proof of the minor and the above stated documents of the guardian are required to open this account.
Q. Will one get a passbook?
A. Yes, all the suscribers are issued a passbook, i.e. an authentic copy of the bank ledger of the account. It may be updated at least once in a year. Well, it is prudent to get it updated after suscriptions and after 31st March to have a clear record of the total interest earned and the total subscription deposited during the last year and during the entire tenure of the account.
A photocopy of the passbook is also considered to be an investment proof. So, you may submit it as an investment proof to claim deduction from tax under section 80C of the Income Tax Act.
A photocopy of the passbook is also considered to be an investment proof. So, you may submit it as an investment proof to claim deduction from tax under section 80C of the Income Tax Act.
Q. How much and how many times one can subscribe, i. e. deposit money into it?
A. Minimum Rs500 and maximum Rs150000 (changes every year per Union budget). The amount should be in multiple of Rs5. Total deposit into individual and child's accounts shouldn't exceed the maximum limit.
12 instalments p.a. is permissible.
Q. When can one deposit?
A. Money can be deposited any time, but any amount deposited after the 5th day of any month wouldn't earn any interest for the rest of the days of that month. So deposit within 5th of any month.
Q. What are the tax benefits?
A. The amount deposited in your own name and that of your child may be deducted from you gross income subject to the above noted maximum limit. So you save at least 10% of the money deposited. Interest earned isn't taxable, nor is the maturity proceeds. So it is in the EEE category.
Q. When and how much interest would one get?
A. It is around 8.1% at present. The interest rate is fixed in the annual budget. However, henceforth, it would be revised every quarter as per the news.
Interest is credited only once every year on 31st March.
Q. Flexibility and liquidity?
A. Any amount can be deposited with cash or cheque or online. If you can't deposit money in any year, you may revive the account by paying the arrear minimum subscription and a flat fine of Rs.50 for each year of default, e.g. if you failed to subscribe for 4 years , you need to pay a total fine of Rs200 (4xRs50). In addition, you would need to pay the arrear subscription, e.g. Rs.500X4= Rs.2000. So, you would have to pay a total sum of Rs.2,200.
However, the fine paid by you would not appear on your passbook. Make sure you confirm the amount of fine before making the payment.
However, the fine paid by you would not appear on your passbook. Make sure you confirm the amount of fine before making the payment.
Loan is allowed upto the 6th year, and partial withdrawal from 7th year.
The current tax law allows premature closure in case of unavoidable need. However, there would be a penalty of reduction of 1% interested rate.
Q. Can its term be extended beyond maturity?
A. Yes, its term can be extended for a block of 5 years for as many times as you feel like. You may choose to extend with or without fresh subscription.
If you choose to subscribe , you would continue getting the tax benefits.
You may withdraw money every year during extension. You may get tax benefit by reinvesting this sum into it!
Q. What are the payment options?
A. Cash with instant credit. Cheque with normal clearing time, i. e. around 5 days in case of a different bank-cheque. Online: linked to your bank account with same bank with instant credit.
If you are making payment in the month of March, i.e. the last month of the financial year in India, make sure you make the payment well in advance and much before 31st March. It is because if the subscription is not credited into your account by 31st March, you would not be able to claim deduction from your gross total income in the same year. However, you would be able to claim deduction in the next year.
If you are making payment in the month of March, i.e. the last month of the financial year in India, make sure you make the payment well in advance and much before 31st March. It is because if the subscription is not credited into your account by 31st March, you would not be able to claim deduction from your gross total income in the same year. However, you would be able to claim deduction in the next year.
So, if you are subscribing in the last week of March or just before 31st March, choose the cash or online inta-bank fund transfer option than cheque etc. which may take some time before realisation.
Q. Any other benefits?
A. This account cannot be attached by even a court decree. However, tax department can do so in case of tax evasion investigation etc.
Q. Can it be transferred from one bank or post office to another?
A. Yes, the account may be transferred to any other branch of the same bank/ post office or from one bank/post office to another.
A. Yes, the account may be transferred to any other branch of the same bank/ post office or from one bank/post office to another.
Q. Why should this account be opened in the name of a child?
A. If you do so, your child won't have to wait for 15 years. They can save as they reach the earning age, and they would have to wait for aound 5 years only to use their earning for their higher education or buying a house property or for marriage or a foreign tour.
Q. Can I access the account online?
A. Yes, most banks provide this facility, e.g. State Bank of India, ICICI Bank, Bank of India, United Bank of India, and perhaps any other bank provide their customers with the option of accessing their PPF account detail online.
Q. Where does my money go? Who keeps it?
A. The money is deposited into the Union government account. The bank/post office only act as the agent for collecting subscription and maintaining records.
Q. Which is the most suitable bank/post office for PPF account?
A. Legally they are all equal. However, in terms of customer-service they differ. So, choose the bank or PO which suits you the best. Banks have better technological, and cheque clearing system.
Q. What is the objective of this blog?
A. The objective of this blog is to provide information to the readers, and for academic purposes. I do not wish to encourage or discourage anyone to open this account. It is a financial matter. Therefore, you should do everything to protect your money.
Please verify everything from reliable and independent sources. The website of India Post and that of different scheduled banks in India can give you authentic information about this scheme.
