Tag: PPF

5 changes in PPF rules which will impact you (PPF scheme 2019)

Posted on by Anuradha Singh

On 12th December, the Government of India has notified some changes to the PPF Scheme 1968. The government has replaced the earlier PPF Scheme, 1968 to the new Public Provident Fund (PPF) Scheme, 2019. You can view the following 5 min video I created on this topic.

Let us see what changes have been made –

1) Premature Closure allowed when residency status changes

OLD RULE – In 2016, the Government allowed premature closure of the PPF Account after 5 yrs, in case of account holders death, higher education of account holder, life threatening illness in family.

NEW RULE – As per new rules, two more condition is added.

Condition 1 : Now, a PPF account holder can close the PPF account after 5 yrs, in case of change in residency status (when you become an NRI or when NRI’s become resident) on the production of a copy of passport and visa or income tax return. However in that case, the account holder will earn 1% lower interest. This is great benefit to those NRI’s who are returning to India and want to redeem money from their PPF account, but they had to wait for 15 yrs lock in period.

Condition 2 : Now the PPF can be withdrawn to finance higher education of the dependent children of the account holder. For that one has to submit fees bills or confirmation of admission in a recognized institute of higher education in India or abroad

2) NRI investors might be able to open a PPF account

OLD RULE – As per old rules, it was very clear that NRI investors can’t open a fresh PPF account, however if they have an existing account they can continue holding it till maturity and then close it.

NEW RULE – However, the new PPF law is not clear on this. It does not restrict NRI investors to open the fresh account and it does mention if they have to close it on maturity. Hence looks like NRI investors can operate the PPF account in the same way the residents can. However in Form 1 (PPF account opening form) one has to give declaration that one is resident of India of not.

In that case, it’s unclear how NRI’s will be able to fillup form 1 to open a fresh PPF account. However it’s very sure that they are not required to close the PPF account on maturity and can continue it like any other investor.

3) Deposits allowed in multiple of 50 without limits

OLD RULE – Earlier as per PPF Scheme 1968, deposits were allowed in multiples of 5 with a maximum limit of 12 deposits in a 1 year.

NEW RULE – As per PPF Scheme, 2019 deposits are now allowed in multiples of ₹50 with no maximum limit on a number of total deposits that have been specified. In other words, you can make deposits to the PPF account as many times as you want, subject to the maximum limit amount.

Note – The minimum annual contribution of ₹500 and the maximum annual contribution of ₹1.5 lakh have been kept as it is.

4) PPF can’t be extended if there are no deposits made after maturity

OLD RULE – As per old rules, Once you choose to extend your PPF account on maturity with the option of “without deposits”, you could still choose to deposit the money when you renew if further after 5 yrs.

NEW RULE – However, as per new rules, once you have not made any deposits for 1 yrs after maturity, you will never be able to deposit the money after that in PPF account. All you can do is continue the PPF account and it will earn the returns till there is any balance.

Note : Once the PPF account is matured, you can renew it in the block of 5 yrs and if you want to continue depositing the money, you need to fill-up a form and mention specifically that you will continue your PPF account “with deposits”

5) Interest on Loan reduced by 1%

OLD RULE – Earlier as per PPF Scheme 1968, Interest on loan against your PPF Account was 2% per annum above the prevailing PPF interest rate. For example, if the PPF interest rate was 7%, you would have to pay an interest rate of 9% (7+2).

NEW RULE – As per PPF Scheme 2019, the interest on loan rate has been reduced to 1% per annum above the prevailing PPF interest rate. For example, if the PPF interest rate is 7%, you would have to pay a rate of 8% (7+1).

Note – In both cases, the interest is levied from the first day of the month in which the loan is taken to the last day of the month in which the last installment of the loan is paid.

Changes in the FORM of PPF

Apart from these changes above, now there will be just 5 PPF related forms which are as follows

  • Form 1 – Opening of Account form
  • Form 2 – Form for application for loan/withdrawal
  • From 3 – Form for application for closure of the account
  • Form 4 – Application for extension of account
  • Form 5 – Form for premature closure of the account

Here is a table showing how the old forms changed to new forms

[su_table responsive=”yes” alternate=”no”]

Name of the Form OLD Form NEW Form
a) Account Opening Form Form A Form 1
b) Contribution Form Form B Not specified
c) Partial withdrawals Form C Form 2
d) Account closure after maturity Form C Form 3
e) PPF Loan Form D Form 2
f) Extension Form Form H Form 4
g) Premature Closure Form N/A Form 5
h) Nomination Form Form E Form 1

[/su_table]

Conclusion –

So now you all know the updated version of the PPF Scheme. Do let us know your views on the article in the comment section. Till then keep sharing this article with your family and Friends and Happy Learning.

What happens to PPF account once you become NRI?

Posted on by Jagoinvestor

Once you become an NRI, what happens to your PPF account? Can you continue it or do you need to close it?

The one-line answer is – NO, You do not have to close it, and you can continue it till its maturity.

But there are more details to this.

Last year on 2nd Oct 2017, govt-issued a notification that once a person becomes NRI, his PPF account will be closed on the same day he becomes the NRI and all his money will earn only 4% interest thereafter.

New PPF Notification cancels the older notification

So yes, in Oct last year the rule had changed regarding PPF for NRI. You had to close it once you become the NRI, but recently on Feb 23rd, 2018, there was another notification issued that the old notification is on hold now and canceled till further notice.

Do NRI have to close their PPF account once they become NRI - answer is NO

This means that the same old rule will be applicable now onwards for NRI investors. An NRI cannot open a fresh new PPF account but can hold an existing PPF account till maturity.

Let’s see a few frequently asked questions related to the PPF accounts of NRIs.

NRI PPF FAQ

Q.1 Can NRI open a fresh PPF account?

As per the change in the amendment of the public provident fund, a person cannot open a PPF account once his status changes to NRI.

Q.2 What will happen if I’m an NRI and still open a fresh PPF account?

It is possible to open a PPF account for NRI because of the inefficiencies in the system, but before doing that you must be aware that legal actions can be taken by the authority in such cases. You will not get any interest on your PPF account if they find out.

Q.3 What should I do if I have a PPF account when I was Indian residential and later become NRI?

You do not have to do anything here. You can continue your PPF account till its maturity, but you cant extend it after 15 yrs.

Q.4 Can I contribute to my existing PPF account once I become NRI?

Yes, you can invest in your existing PPF account even after becoming NRI through your NRE or NRO account. You can only contribute till your PPF account matures.

Q.5 How to close my PPF account after it matures?

The steps for this process are as given below:

Step 1: Fill the application form for PPF withdrawal (Form C) and send it to your parents, relatives or friends in India, with an authority letter in which mention it clearly that you are giving that person the authority to withdraw your PPF.

This is how FORM C looks like:

this is form c for withdrawal of ppf

Step 2: That person then will go to the bank where you have your NRE/NRO account and get he documents attached by the the manager and then submits the documents. Bank will accept only the attested documents.

We hope you got a fair idea on the PPF rules related to NRI. In case you have any queries, let us know in the comments section below.

ELSS vs PPF – where to invest for your tax saving? (20 yrs data analysis)

Posted on by Jagoinvestor

Most of the people who want to do tax saving in 80C are confused if they should invest in PPF or ELSS (tax saving mutual funds). Both PPF and ELSS offer taxation benefits of up to Rs 1.5 lacs under sec 80C.

PPF vs ELSS - which one is better to invest?

ELSS vs PPF – Meaning

Let’s start with their meaning and what exactly they are.

PPF means public provident fund. Its a govt scheme which is run by the post office and its a very safe financial product. There is no risk to it because it’s guaranteed by the govt of India. Its quite famous among investors for its safety and assured returns.

On the other hand ELSS (Equity linked saving scheme) is fairly new financial product in India (from last 15 yrs). It’s mainly an equity mutual fund that gives you an income tax benefit. Equity mutual funds mainly invest in stocks of companies, which makes sure that they deliver high returns, but at the same time they are risky (actually volatile) and their returns keep going up and down.

Now, let’s compare PPF and ELSS on various parameters.

#1 – Returns

The returns in PPF change every year and it’s around 7.5-8 %. Right now its 7.8% and it keeps on changing from time to time which is notified by govt. Earlier many years back, PPF returns were in a range of 12% and then it came down to 9%. But from the last few years, it’s hovering around 8%.

In the case of ELSS, it’s linked to the market and the returns are not fixed in the short term. Some years it can be 20 %, some times it can be 50% and in some years it can be -25% also. So you can see that the returns are totally dependent on stock markets and how well they perform. However, in the long term, you can be assured that you will get a return in the range of 12-18%.  The returns are not at all guaranteed by anyone.

#2 – Lock-in Period

Your PPF investments are locked in for 15 yrs, but some partial money can be withdrawn after 7 yrs. So basically its a very long term product, and if you are investing in PPF, you should be ready to lock you money for a very long time. After 15 yrs, you can again extend your PPF for another 5 yrs (any number of times) and your money will again be locked for that 5 yrs.

On the other hand, ELSS has a lock-in for just 3 yrs. You can take out your money after 3 yrs. The important point to note here is that each investment is locked in for 3 yrs, so if you have a SIP running in an ELSS fund, then each installment is locked for 36 months.

So if you want money in 4-5 yrs, ELSS is a better choice compared to PPF from a liquidity point of view.

#3 – RISK

PPF is not at all risky because its value does not go down. PPF is also guaranteed by govt, so there are no changes in fraud. If you plot the graph of your PPF value, you will see a straight line going up. However, note that PPF has a totally different kind of risk, which is that it does not give inflation-adjusted positive returns. This means that its returns match the inflation and in the end, you do not have any net returns.

On the other hand, ELSS is volatile, which is often referred to as “RISK” . The value of ELSSS keeps going up and down depending on the stock market movements. In the short term, you might experience a downturn and loss in value, but over the longer-term, you will see good results.

As most of the investors are risk-averse and do not like to see a dip in the value of their investments, most of the investors stay away from ELSS or stocks in general and lose the chance to experience great returns at the same time.

#4 – Taxation

PPF is tax-free. There is no tax on PPF returns. Whatever returns you get in PPF is 100% tax-exempt.

Earlier ELSS was also tax-exempt after 1 yr, but with budget 2017-2018, now any gains in equity mutual funds or stocks are taxable @10% when you sell them, but you get an exemption of Rs 1 lac per yr. This means that if your profit after selling ELSS is 4 lacs, then you have to pay a 10% tax on 3 lacs. However, even after this taxation, the post-tax returns of ELSS are much better than any other investment option.

Here is an infographic that shows you a quick comparison between PPF and ELSS.

ppf vs elss - where to invest for tax saving under 80C

How to invest in PPF or ELSS?

If you want to invest in the PPF account, you can open a PPF account in a post office or any bank (generally SBI is very famous for PPF). Note that it does not matter where you are opening your PPF account, if you open with the post office, SBI, or ICICI .. at all the places you are going to get the same interest because ultimately it’s controlled by POST OFFICE only.

The banks are just a medium to invest and nothing else.

If you want to invest in ELSS, then you can choose any fund house (there are many AMC like ICICI, HDFC, SBI, Motilal Oswal etc). You can either go to their website directly or contact an advisor (You can also invest in ELSS through Jagoinvestor help)

Returns of ELSS and PPF from the last 20 years

It’s important to check how PPF and ELSS have performed in the last 20 yrs (1996 – 2016) so that you get a fair idea on their performance and which one is better from a long term point of view. So we took one of the famous ELSS (HDFC Tax Saver) as an example along with PPF and calculated how the value in both will increase over time if someone invests Rs 1 lac in both the financial product.

PPF vs ELSS - difference in returns in last 20 years

In the above table, you can see that Rs 1 lac of yearly investment for 20 yrs have accumulated to Rs 54 lacs in PPF, whereas it becomes 2.2 crores in the ELSS, which means that ELSS gave 5 times more returns than PPF.

However, this difference is more visible only after 10 yrs passed and compounding starts kicking in.

In the initial years, there was no big difference in their values. See the graph given below. You will get a clear idea of how ELSS has performed incredibly towards the end of tenure.

elss vs ppf returns in last 20 years

Important Note :

The example of HDFC Tax Saver is taken only for the illustration purpose. This is not a recommendation, and right now HDFC Tax saver is not the best option for tax saving. There are many other ELSS funds which can be chosen other than HDFC Tax saver. Kindly contact your Financial Advisor for any recommendations.

So after studying the table data and graph, I hope it becomes easier for you to know the difference between the returns from PPF and ELSS investments. If you still have any confusion or any doubt in your mind, feel free to ask us by leaving your query in our comment section.

How to withdraw your PPF account money anywhere in India? Here is the Process

Posted on by Jagoinvestor

Today I am going to share very interesting and rare information related to PPF with you all.

Have you ever wondered how can one withdraw their PPF money without visiting the base branch (from where PPF was opened)? A lot of people open PPF account in one city and then move to another city. It’s really a headache to travel to another city just for the sake of closing the PPF account or withdrawing the money either at maturity or partially.

withdraw ppf from any branch

I tried to see if this is a problem that PPF holders face, and I found that a lot of people search for “Can I withdraw PPF from any SBI branch”? This means that this is widespread query and I decided to write on this.

There are many articles and people on internet who will tell you that you need to visit the base branch only to withdraw or close your PPF account, but recently I figured out that its not true and there is a process using which you can close or withdraw PPF money from any city without visiting the base branch where you opened the PPF account.

Here is one reference of a query like that on Yahoo answers

You cant withdraw PPF from other branch

I want to share with you today that its a big myth and its actually POSSIBLE.

A few days back, I got in touch with Priyesh Sampat, Legacy & Succession Counsellor from Mumbai, who has handled hundreds of PPF related cases in the past. He shared with me how is it possible to withdraw money from the PPF account without visiting the original branch and he has seen it work in real life for his old clients.

He was very helpful and shared many insights and his experience on this topic. I thank him for that.

Steps to withdraw from your PPF account from a different city

Before I share the steps for PPF withdrawal from a different city, I want to mention that the steps below are applicable when you have your PPF account with SBI or some other public bank like PNB, Vijaya Bank, etc.

The steps below will not work in case you have PPF with Post office, in which case you first have to transfer your PPF from post office to SBI bank and then you can take the following steps.

Step #1 – Arrange your KYC documents

The first step is to make sure you arrange all your KYC documents like

  • Form C – For PPF withdrawal
  • Canceled Cheque – The account in which you want to money to be credited
  • Your Identity & Address Proof
  • Your PPF passbook (in case it is available with you)

form c for PPF withdrawal

Do not sign these documents at the moment, because these need to be signed in the presence of the bank officials. You can download PPF form C here

Step #2 – Go to a local branch of the bank

The next step is to visit the local bank branch of the city where you reside or are present and talk to the staff there. Tell them that you want to withdraw your PPF, but it’s base branch is in some other city, so you want them to attest the documents.

They will ask you to sign on the documents in your presence and might also put their signature or seal on the documents confirming that your attestation is complete. Also, request the attesting banker to mention his/her name and signature code issued by RBI. This makes the attestation complete in all regards.

Step #3 – Send documents to Main Branch using Speed/Registered post

Once the bank staff completes your verification and attestation, it might happen that they keep the documents and tell you that they will themselves send the documents to the main branch, in which case take an acknowledgement from them which has their signature and seal, so that you have the proof that you gave the documents to local branch.

Otherwise, you yourself will have to send the documents to the base branch where you opened your PPF account by speed post or registered post.

It’s important that you use a speed/registered post so that you have confirmation when the documents are delivered. Also as post office is a govt organization, you have all the records and you can also find out information using RTI later.

Step #4 – Get PPF money credited in your account by NEFT/RTGS

Once the original branch gets your documents, they will process them and credit back your PPF maturity amount by NEFT/RTGS.

In earlier days the banks used to hand over the Pay orders or DD which was supposed to be received by a person, but now with NEFT/RTGS facility the money is transferred electronically.

So the process for PPF withdrawal is very simple as explained above, but let us see some finer details or cases now

Can I use the same process mentioned above in case of partial withdrawal?

The answer is YES. The above process is not just for the PPF withdrawal at maturity, but even in case of partial PPF withdrawal after completion of 7 yrs.

I have PPF in Post office, how can I withdraw?

As I mentioned above, the above process will work only in case you have your PPF with a PSU bank, so the first step is to transfer your PPF account from Post office to the PSU bank. The steps are already mentioned in this article. Read the comments where many people have shared how they successfully transferred their PPF accounts to PSU banks.

I am an NRI, how can I withdraw my PPF account from outside India?

If you are an NRI, first thing you should know that that you cannot extend your PPF account after it matures in 15 yrs period. I am sure most of the NRI’s keep travelling to India every year or once in a while if not every year. So whenever you visit India next time, you can follow the same process which is given above.

However, if you still want to try withdrawing your PPF from abroad, let me share you the process which is not guaranteed to work always, but it’s already tried by Priyesh on one of her NRI clients and it worked for them.

The process for PPF withdrawal by NRI

Basically the PSU bank can only process your PPF withdrawal request if your signature is attested by an authority, which can be the PSU bank itself (which will need your presence) or some other authority.

If an NRI has an NRE/NRO account in a bank (a good bank balance or relationship with a bank will be a plus), then they can follow this process

  • Courier the documents to India in the city where you have the NRE/NRO account. Make sure you send these documents to a person (relative, parents, siblings etc or friends)
  • Give an authority letter mentioning that you are allowing the person to follow this process on your behalf
  • Ask the person to go to the bank where you have NRE/NRO account and ask them to attest these documents (mainly the signature part) . At this step you can expect the friction, because this is not a standard process.
  • Once the attestation is done, then you can ask your person to visit the PSU bank for PPF withdrawal and they might accept these documents which are attested by your bank.

Note that Priyesh has done the same steps for one of her NRI client and it worked because the NRI was giving a very good premium each year to the bank and bank was more than happy to “help” the client 🙂

Why can’t you withdraw PPF from any branch?

Truly speaking I have no answer for that.

I know that with the advancement of technology, the PPF withdrawal process should be smoother now and it should be possible with a button of click, but as of now, it’s not the reality.

A lot of people still wait to travel to their base branch city where they opened their PPF and follow the process. However many investors never withdraw their PPF because they are not clear if it’s possible or not.

It was my attempt to bring this process in notice of yours so that you can at least try this and see if it works. If someone has done something different and successfully withdrawn their PPF from a different city, please share that with us in comment section and we will add it in the main article.

We would like to know if you got any new insights or not and this article was helpful or not?

Closing your PPF after 5 yrs is possible now [NEW RULES]

Posted on by Jagoinvestor

Recently the PPF closure rules got changed and now a PPF account can be closed prematurely after 5 yrs itself, but only in some conditions which we will see in this article.

Till now, as per the old rules, the PPF account had a lock-in period of 15 yrs, and in no case, it was possible to close the account other than the death of the subscriber itself.

So death was the only valid reason to close the PPF account before 15 yrs maturity period.

PPF premature closure rules

As per the recent rule change by the govt, PPF closure before 15 years is now possible. You can close a PPF account if it’s at least 5 yrs old, in following 3 cases

Case #1 – Death

If the PPF holder dies, then the account can be closed anytime (even before 5 yrs) and the nominee/legal heirs can claim the amount from Govt.

Case #2 – Life-Threatening illness

The PPF account can also be closed in case, the money is required for curing the serious ailment or life-threatening disease of the following people

  • PPF subscriber himself/herself
  • Spouse
  • Dependent Children
  • Dependent Parents

Note that one has to provide the documentary evidence from a competent medical authority. So you will need to share the proof that you need to undergo some big treatment/surgery etc and you will need money for that.

Case #3 – Higher Education

If money is required for the higher education for the PPF subscriber or the minor on whose name the account is opened, then one can pre-close the PPF account. However one has to produce the fee bills and the proof of admission or any other documentary evidence.

Here are the exact notification wordings

PPF pre-closure notification

Penalty of 1% when you close PPF account before maturity

This pre-close feature comes with a penalty of 1% of interest for each year. What it means is that for all the years since your PPF account is opened, you will get 1% less interest for each year. So if you earned 8.7% for a particular year, your calculation will be done @7.7% and this way for each period 1% will be reduced.

Govt has issued an example calculation for penalty of 1% . But the question now is does 1% penalty mean 1% less amount in final corpus after pre-closure?

No, the answer is 4.88 %!

Yes, You get 4.88% less corpus due to this pre-closure penalty of 1 %. But this is true for that example only which is given by govt in their notification. I went deeper and did the exact calculation and here are the results.

ppf pre-closure example

The reason why there is a good amount of difference is that there is the compounding of penalty in this example. If you check the balances in 3rd year, you will see there is difference of 2.1 %. And it keeps on increasing as the number of years increases.

Which means, Older the PPF account, the higher is the final penalty for you.

It does not make a lot of sense to close the PPF account before maturity once 10 yrs is passed, as the penalty will be higher than 4-5% if most of the cases.

PPF pre-closure rule will help investors

PPF is one of the widely popular financial products in India. Majority of families have at least one PPF account and given it’s a long term product, there is a good amount of money lying in it. Now with this new pre-closure rule, an investor gets the benefit of closing the PPF account if they want to do it.

But the only issue is that it’s not an emergency solution to the problem as the documentation requirement is there and being a govt product, you can expect a slow response while closing down the PPF account and using the money.

Please share what do you feel about this new change in PPF closure rules?

PPF interest rate reduced from 8.7% to 8.1% effective April

Posted on by Jagoinvestor

The government has cut the interest rate on Public Provident Fund from 8.7%to 8.1% effective April.

This was part of the interest rate cuts in the small saving schemes and apart from PPF, other very famous instruments like Kisan Vikas Patra, Senior Citizen Scheme & NSC interest rates have also come down by a good margin.

These new rates will be applicable from Apr 1st. Please note that this is one of the biggest rate cuts in the small saving schemes in a long time.

Here is a summary of all the rate cuts

  • Kisan Vikas Patra interest rates down from 8.7% to 7.8%
  • NSC interest rates down from 8.5% to 8.1%
  • Senior Citizen Saving Scheme interest down from 9.3% to 8.6%
  • 5 yr NSC (National Saving Scheme) interest down from 8.5% to 8.1%
  • Sukanya Samriddhi Yojana interest down from 9.2% to 8.6%
  • 1 yr time post office deposits has been cut from 8.4% to 7.1%
  • 2 yr time post office deposits has been cut from 8.4% to 7.2%
  • 3 yr time post office deposits has been cut from 8.4% to 7.4%
  • 5 yr time post office deposits has been cut from 8.5% to 7.9%
  • Postal saving deposits remain unchanged at 4%

Interest rates aligned with market rates

On Feb 16, 2016 (before the budget) itself the govt had announced that they are working towards bring the small saving interest rates closed to the market rates, but that time no changes were done in these schemes.

The government had on February 16 announced moving small saving interest rates closer to market rates. On that day, rates on short-term post office deposits was cut by 0.25 per cent but long-term instruments such as MIS, PPF, senior citizen and girl child schemes were left untouched.

Now the interest on these schemes is closer to the interest rates given by the banks.

I will leave the decision to conclude if this was a good or bad move by govt on you, however the common man is not very happy with this. Messages against this move are are all over the twitter.

ppf interest rate reduction reactions

What is your reaction to this?

Majority of investors in India invest in Public Providend Fund (PPF) scheme and it’s very close to their heart. However this move will make many people think if PPF is the best thing they can do with their money or not (learn how PPF interest rate is calculated).

Will they move to equity markets because of this move? Will it make them interested in other kind of financial products?

What do you think? Do you think of this big interest rate cut in PPF and other schemes? Please share your views in comments section.

When exactly does PPF account mature ? Answer is not 15 yrs !

Posted on by Jagoinvestor

When does a PPF account mature ? If you thought that its 15 yrs from the date you started your PPF account, then you are wrong ? Yes – there is a myth around this topic and most of the people do not know how does it actually work.

Its extremely simple to find out when exactly your PPF account matures, and let me show you how to calculate it!

How is PPF maturity date calculated for PPF account ?

The maturity period for PPF account is 15 years from the close of the financial year in which the initial subscription was made. Its that simple. So if you open your PPF account on 4th Nov 2014, this date lies in the financial year 2014-2015 , then the financial year ends on 31st Mar, 2015 .

So the 15 yrs will be calculated from this date (31st Mar, 2015) and the lock in year would be 2015+15 = 2030 . So the exact date would be 1st Apr, 2030 in this case.

ppf maturity calculation

Note that PPF maturity always happens on 1st Apr , and not any random date of a year. Most of the people just add 15 yrs to the date of opening of PPF account to find out the maturity date.

Below you can see a short video which will explain PPF maturity calculation to you. Have a look at it.

So technically your PPF account can mature in 16 yrs in best case, suppose you open your PPF account in the first week of Apr, then your 15 yrs will be calculated from the next year (financial year ends on 31st Mar of the next year).

Yes – You can now invest extra Rs 50,000 in your PPF account and it will be accepted

Posted on by Jagoinvestor

Congratulations, Now you can now go and deposit the extra Rs 50,000 in your PPF account as the limit for your PPF investments was raised from Rs 1 lac per year to Rs 1.5 lacs in this budget.

ppf

A lot of investors had invested Rs 1 lac in their PPF account this year start and when the budget raised the limit by extra Rs 50,000 . They had this big question – “Can I invest Rs 50,000 more in my PPF account this year and get the income tax benefit?”

The thing is even if the budget has mentioned that PPF limit was raised, it does not get increased instantly. I mean the banks officials and post office staff does not allow the max limit the same moment. A separate notification is required by the RBI after making the required amendments in the Public Provident Fund scheme and that’s exactly what happened on 22nd Aug .

PUBLIC PROVIDENT FUND (AMENDMENT) SCHEME, 2014 – AMENDMENT IN PARAGRAPH 3 AND FORM-A

NOTIFICATION NO. GSR 588(E) [F.NO.1/2/2014-NS.II], DATED 13-8-2014

In exercise of the powers conferred by sub-section (4) of Section 3 of the Public Provident Fund Act, 1968 (23 of 1968), the Central Government hereby makes the following further amendments to the Public Provident Fund Scheme, 1968, namely :—

1. (1) This Scheme may be called the Public Provident Fund (Amendment) Scheme, 2014.
(2) It shall come into force from the date of its publication in the Official Gazette.

2. In the Public Provident Fund Scheme, 1968,—

(i) in paragraph 3, in sub-paragraph (1), for the letters and figures “Rs.1,00,000”, the letters and figures “Rs.1,50,000” shall be substituted;

(ii) In Form-A, in paragraph (iv), for the letters and figures “Rs.1,00,000”, the letters and figures “Rs.1,50,000” shall be substituted.

Below you can see the copy of the notification which came 1 day back and the same has been sent to all the banks and post office departments and RBI has asked them to now incorporate it and also inform to all the PPF subscribers.

ppf limit raised notification rbi

How much extra income tax you will save by investing Rs 50,000 more in PPF ?

If you are into the highest bracket of 30% , in that case you will save 30% tax on the extra Rs.50,000 invested in PPF. So that comes to Rs.15,000.

Earlier you used to pay income tax on Rs.50,000 (because you had maxed out your investments in income tax saving products) , but now you will save 50,000 and also pay Rs.15,000 less in your income tax (because your taxable income will come down by 50,000)

So now you can visit your SBI Bank or Post office or any other bank where you have your PPF account and invest the extra Rs.50,000 🙂

How this Lady paid Rs 25,000 in pay-order charges for claiming her PPF maturity amount

Posted on by Jagoinvestor

Is your PPF account going to mature very soon ? You are excited to finally redeem your years of saved money in PPF account.

But do you know that some banks are playing with some investors ignorance and charging them hefty amount in the name of DD charges or Pay-order charges to give bank the Public Provident Fund account matured amount.

Let me unearth this no so known or talked about thing today.

bank charges

Read this incident below to understand what I am talking about

My neighbor (a very old working woman) had a PPF A/c in SBI, on 31st of March 2010 it completed its 15 year term and hence the same was eligible for withdrawl, she duly filled up the redemption form and asked the bank to redeem the amount.

On 14th of April 2010, the bank issued a pay order but deducted bank charges (as the savings account is with another bank), SBI has nearly deducted bank charges of about 25000/- from her.

My neighbor didnt have a bank account in SBI, her account is in IDBI and SBI has deducted the charges for preparing a pay order. Here no service is being rendered but rather its bank obligation to make the payment.

Please help. It would be good if we can help her.

(Source)

Some Banks not allowing PPF Maturity Redemption directly to saving bank account

When your PPF account matures, and you want to redeem the money, there are several options you can get the money. You can either take it directly in your saving bank account, or get a DD created or a pay-order.

However a lot of banks fool customers and never share with them that the money can be directly credited to the saving bank account and force them to make the Demand Draft or Payorder, because that involves charges and it adds to the bank revenues.

And most of the times, the helpless customers fall for it because the charges at times are in range of few hundred and they do not want to pursue the matter and complicate it.

In the example above, you can clearly see that the person was forced to get the money through pay-order and such a heavy charges for that was applied.

This whole mis-guiding worsens, when the person does not have the saving bank account in the same bank, the officials in-charge tell that its mandatory to have a saving bank account in the bank if you want to get the redemption amount in your saving bank account, else you will have to get it through DD or payorder, which is completely wrong.

There is no rule like that. One should be able to get the money through NEFT or RTGS or direct bank transfer if they wish to and the PPF redemption form gives that option clearly. Have a look

sbi ppf widthdrawal form after maturity form C

You can clearly see that there is an option of crediting your PPF maturity amount to any saving bank account.

Some real life Incidents of Banks Asking for heavy charges at the time of PPF maturity payment

Mr. Naresh was asked by Bank of Maharashtra for DD Charges for PPF maturity Payments

Bank of Maharashtra charged me DD charges of Rs 5050/ while making maturity payment of my Public Provident Fund account money. I had asked them to transfer money by cheque or NEFT, but they refused and issued me DD. Is there anything I can do?

Mr. Premji was charged payorder charges of Rs 900 by State bank of Hydrabad

State bank of Hyderabad recovered about Rs.900/- for issuing their banker’s cheque (pay order) for PPF part withdrawal. I am told that as per the PPF rules, the bank cannot recover any charges for issue of Banker’s cheque or pay order for PPF withdrawals. However I am unable to find out such rule in print.

What is the correct status regarding the above issue? Which authority will give a authenticated clarification?

Where to complain for these kind of issues?

A lot of people are not even aware that banks are taking them for granted and trying to levy charges which are unethical. Customers do not resist at times, because they dont want to get into the mess and waste their time for small charges (like Rs 500-Rs 1000).

At times they are excited to receive the big amount from their Public Provident Fund account and cant wait for it. At times there are emergency situations which dont allow them to fight back. But incase you want to fight back. Make sure you follow these following steps

  • Make sure you meet the Bank Manager and tell him clearly that you know the rules and there is no such rule that you have to pay DD or Payorder charges to get back your own money
  • Ask them in writing for charges and also insist that they show you the rule book.
  • If nothing works, file an RTI to RBI asking about the bank action and if there is any such rule. You can also file a RTI to Post Office (which handles PPF finally) about this rule.

Have you ever come across this situation in life ? If not , great ! .. you are now informed what to do when you face this situation

5 must know rules before Opening PPF Account for minor child

Posted on by Jagoinvestor

PPF account is one of the most favorite investment product in India and every person wants to open a PPF account for minor child. However, there are lots of myths about the rules on opening PPF account for minor kids.

In this article, we will look at some of the important points you should know if you want to open a PPF account for your children. We will discuss about tax exemption, limit on the amount you can invest and PPF maturity rules. Here they are

UPDATE: The limit was 1 Lac when this article was written. Now it has increased to 1.5 Lacs.

rules ppf account for minor children

1. Who can open PPF account for minor Child ?

As per PPF rules, a guardian can open Public Provident Fund account for minor child, where guardian is

  • Either Father or Mother
  • Or incase of Parents are not alive, then any other guardian under the law can open PPF account for minor children, like Uncle, Aunt, Grandmother, Grandfather etc.
  • Incase a surviving parent is incapable of acting, then also some other guardian (as mentioned above) can open PPF minor account

2. How much can I invest in PPF account of Minor Child ?

There is a very big confusion around this topic. The most common question is – “Can I invest more than 1 lac in PPF account ?”

As per my understanding and all the readings I did on this topic, I came to know that One can invest maximum of Rs 1 lac in all the combined PPF (Public Provident Fund) account a person has which is self , and for minor children. Example – Imagine there is a Father (F) and Mother (M) and there are two minor children – C1 and C2 . Now follow scenario’s are possible

  • Father (F) can open PPF account for himself, C1, and C2
  • Wife (W) can open PPF account for herself, C1 and C2
  • Father can open PPF account for himself and C1 (or C2) , Wife can open PPF account for herself and C2 (or C1)

Here are these 3 scenarios possible

PPF account for minor

3. Can I deposit more than 1 lac in PPF account even if I don’t need income tax exemption ?

This is one question which really needs clarity, because a lot of people open PPF accounts for minor children and invest Rs 1 lac in all the Public Provident Fund accounts (Here are articles on opening PPF account with ICICI Bank and with SBI Bank).

You don’t get income tax exemption under 80C for more than total Rs 1 lac, which is fine for many people, but are you eligible to get benefits on more than 1 lac invested or not ?

As per PPF rules, you are just not allowed to invest more than Rs 1 lac in your own PPF account or any other PPF account where you are guardian. So if you have 2 kids and you have opened PPF account in their names, you might be thinking that you can invest 1 lac in your own PPF and 1 lac in each kid PPF account so that you can enjoy tax free maturity income later for your kids PPF account .

But I dont think its allowed, because as per PPF rules, the 1 lac limit is for an individual , not on per account basis .

But I have been investing more than 1 lac each year, already from many years !

I know, a lot of investors who have been investing more than 1 lac in PPF each year. Due to technological challenges, it might be possible that no one stopped you from doing it, but in future if govt comes to know that you have been avoiding the rules, you might not get any interest on the excess amount, so you might get back only the principal amount at the time of maturity.

A lot of Bank staff are also not clear on these rules , here is an incident which was shared by one of our readers 

Today I met manager of the branch of bank (State Bank of India) where I have all these three accounts. I narrated the whole scenario. He does not see any problem with the situation.

I am really confused as to continue this mode of financial plan or to change it in the light of your clarification regarding the total ppf investment limit.

4. Do I need to declare about my personal PPF accounts at the time of opening minor PPF ?

A person can not have more than 1 PPF account on self name, but they can have it as a guardian for his children , but you need to declare about all your PPF (Public Provident Fund) account as self and for other children at the time of opening a new PPF account with other kids.

Because when you fill up the PPF opening form, there is a declaration you need to give about it , here is a snapshot of how it looks like

self declaration ppf form

Which means that legally you need to declare about your other PPF accounts , if you don’t do so, you are breaking the law and if in future its detected that you have been doing what is not allowed, all the money you have deposited in PPF account in excess to the limit allowed will just be returned to you without any interest, and that might be a big blow to your overall planning.

So, a small change you can do in your overall planning is that, you can ask your spouse to open PPF account as guardian for the child, this way, one husband can avail upto 1 lac benefit and wife can also avail upto 1 lac benefit.

5. What happens when the minor kid becomes a major ?

Case 1 : If PPF account matures before the child attains 18 yrs –

In this case the guardian can either withdraw the money from PPF or extend it for another 5 yrs block . In this case, the money withdrawn will be treated as guardian income and now when this money is invested somewhere else and any interest income is earned (learn how PPF interest is calculated), then it will be treated as guardian income only.

So imagine PPF (Public Provident Fund) account is matured and the kid is still minor (assume you opened the PPF when he/she was 1 yr old) and you get Rs 10 lacs from PPF account, now when you invest this 10 lacs into FD , you get Rs 1 lac as interest in a year, this interest income will be treated as your income (guardian income) and will be added into income and taxed accordingly.

Case 2 : If PPF account matures after the child attains 18 yrs (become’s major) –

In this case, the account will then be operated by the child (who has become major) and there will be no guardian. The child will then take his/her own independent decision.

In this case, because the PPF account has matured after the child has attained maturity age, all the maturity amount will be income of the child itself, Now any interest income earned on this amount in future will be kid income.

Conclusion

PPF account for minor children is a good idea if you want to build a long term corpus for their education or other requirement. However if you are already exhausting your own limit for PPF (Public Provident Fund), then it might not be that useful because their a limit on the investment amount.

You need to see how you want to divide the amount between your own and your kid and whom do you want to make guardian, yourself or your spouse ?

Can you share about your case ? Do you have PPF account for your minor child ?