Investment in Public
Provident Fund (PPF) Accounts is a favorite tax saving option in view of the
following :
· Deposits made in PPF accounts, Upto a maximum
of Rs. 70,000/- (1,00,000/- w.e.f. 1st December 2011) per annum are eligible for
relief under section 80C of Income Tax Act.
· Interest earned on deposits in PPF accounts is
exempt from Income Tax.
· The entire balance in a PPF account is exempt
from Weath Tax.
· The balance in a PPF cannot be attached under
a court decree.
PPF accounts can be opened at designated
branches of State Bank of India
Changes in the scheme w.e.f. 1st December 2011
· The ceiling of deposit in the account
increased from Rs. 70,000 per annum to Rs. 1 lac per annum.
· The rate of interest under the scheme
increased from 8% per annum to 8.60% per annum.
· The interest on loan amount increased from 1%
to 2% per annum.
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Who can open?
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Any
adult on his / her name or on minor's name in the capacity of guardian of the
minor.
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Minimum amount
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Rs.
500/- per annum is required to be deposited.
The
accounts in which deposits are not made for any reason are treated as
discontinued accounts and such accounts cannot be closed before maturity.
The
discontinued account can be activated by payment of the minimum deposit of
Rs.500/- with default fee of Rs.50/- for each defaulted year.
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Maximum amount
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Rs.
70,000/- per annum. The ceiling has been enhanced to Rs. 1 lac w.e.f. 1st
December 2011.)
The
depositor has flexibility and freedom for depositing any amount in a maximum
12 installments in a financial year.
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Maturity period
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15
years.
An
Account, on the expiry of fifteen years, can be extended for a further period
of five years at a time.
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Interest Rate
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The
interest is paid as per the rates declared by the Government from time to
time.
The
current rate is 8% per annum. The interest rate increase to 8.6% per annum on
balance to the credit of the account holder shall be 8.60% per annum.
The
interest is compounded annually.
The
interest for the month is calculated on the minimum balance available in the
account from 5th of a month to the last date of the month.
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Nomination facility
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Available
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Transferability
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A PPF
account can be transferred from a branch of State Bank of India or a
nationalized bank to Post Office and vice versa and also from a branch of
State Bank of India to a designated branch of Nationalized Bank.
A
PPF account cannot be transferred from one person to another. Even in the
case of death of a depositor, the nominee cannot continue the account.
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Loan facility
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A
depositor can avail of loan facility in the third financial year from the
financial year in which the account was opened.
Application
in prescribed form is to be made for loan along with the pass book of the
account.
In
case, the loan is sought from minor's Account, the guardian has to make a
declaration that the money is required for the use/benefit of the minor.
The
loan can be taken up to 25% of the amount in the account at the end of the
second year immediately preceding the year in which the loan is applied for.
The
loan is repayable in lump sum or convenient installments. Where loan is repaid
within 36 months, interest is charged at 1% (2% w.e.f. 1st December 2011) and
if it is not repaid within 36 months, the interest at the rate of 6% is
charged on the outstanding balance. The interest is to be paid in not more
than two installments after the loan amount is fully repaid.
Once
the first loan is repaid, second loan can be obtained on same terms. This
facility is available till the end of 5th financial year from the end of the
financial year in which initial subscription was made.
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Withdrawal facility
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A
depositor can make partial withdrawals, once every year from his PPF account
after expiry of five years, from the end of Financial Year, in which the
initial deposit was made.
Application
in prescribed form is to be made for withdrawal along with the pass book of
the account.
In
case, the withdrawal is sought from minor's Account, the guardian has to make
a declaration that the money is required for the use/benefit of the minor.
The
amount of withdrawal is restricted to 50% of the credit balance at the end of
the fourth year immediately preceding the year of withdrawal or the year
immediately preceding the year of withdrawal, whichever is lower.
In
case of accounts extended beyond Maturity period partial withdrawals are
allowed once in a year with the condition that the amount of withdrawal
during a five year block period should not exceed 60% of the balance in the
account at the commencement of the block period.
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Premature Encashment
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Premature
closure of a PPF Account is not permissible except in the case of death of
the depositor.
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Deduction u/s 80C
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Available
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Interest Taxability
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Interest
income is totally tax free.
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Other features
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The
benefits of exemption of interest from Income Tax is not available on
deposits made in a PPF account after expiry of fifteen years without
exercising option in writing for continuance of the account within one year.
PPF
accounts can be opened and operated through an authorized agent appointed by
the National Savings Organisation.
Only
local cheques are accepted for deposit and the date of presentation of local
cheque and demand draft is treated as date of deposit in the Account.
Balance
in PPF account cannot be attached under court decree.
Entire
deposit in a PPF account is exempt from the Wealth Tax.
The
deposit in a minor account is clubbed with the deposit of the account of the
guardian for the limit of Rs.70,000/- (1,00,000/- w.e.f. 1st December 2011).
On
death of the account holder his nominee(s)/legal heir(s) cannot continue the
account. The account has to be closed in such case.
Deposits
in excess of Rs.70,000/- (1,00,000/- w.e.f. 1st December 2011) in a financial
year in a PPF account are refunded without interest and the excess amount is
not considered for income tax rebate.
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Agency Commission
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Discontinued
w.e.f. 1st December 2011.
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