PPF (Public Provident Fund)

Any individual in his own name or on behalf of a minor, for whom he/she is a guardian, can subscribe to a Public Provident Fund (PPF) account. Each individual can hold only one PPF account. NRIs are not permitted to open PPF accounts.

A PPF account can be opened at any branch of State Bank of India and its subsidiaries or at the head offices or sub post offices or sub post offices in section grade or at branches of the nationalised banks engaged in the collection of direct taxes.

PPF is a 15 year scheme, requiring minimum 16 contributions in all. The amount of annual subscription ranges from Rs 500 to Rs 70,000 payable either in lump sum or convenient installments, not exceeding 12 in a year. The installment should be in multiples of Rs 5.

Any amount deposited in excess of Rs 70,000 in a year, will not be treated as 'subscription' and shall be returned without any interest.

Deposits in the account earn an interest of 8% per annum compounded annually. Interest is payable on the lowest balance between the fifth day and the last day of the calendar month.

One or more person can be nominated.

The normal maturity period is 15 years from the close of the financial year in which the initial subscription was made. An account, on the expiry of fifteen years, may be extended for a period of five years at a time.

Depositors can take a loan in the third financial year from the financial year in which the account was opened. Loan can be taken up to 25% of the amount standing at the end of second preceding financial year, repayable in 36 installments having the interest rate 1% higher than he receives.
Second, the loan will be given only after the repayment of the first loan. No loan can be obtained after the end of 5th year following the expiry of the year in which the initial subscription was made. In case of death of the subscriber, the nominee/legal heir is liable to pay interest on loans availed of by the subscriber but not paid before his death.

A subscriber is permitted to make one withdrawal every year from the 7th financial year. An amount not exceeding 50% of the balance to his credit at the end of 4th year immediately preceding the year of withdrawal or at the end of preceding year, which ever is lower. The withdrawal can be made even every year.

In event of death of the subscriber, the amount standing to subscriber's credit will be repaid on demand to his legal heirs or the nominee. However the un-drawn balance will continue to earn interest till the end of the month, preceding the month in which the amount is paid to the nominee/legal heir.

In case of no nomination, the scheme now permits payment of balance up to Rs 100,000 to the legal heirs on the basis of affidavits. Earlier the heirs had to produce a succession certificate to get back the balance to the credit of the deceased.

Where no amount is deposited in PPF account in any year the same should be got regularised by depositing at least Rs 500 per year along with a penalty of Rs 100 per year

Continuity after maturity
At the subscriber's option, the scheme may be continued for another 5 years after maturity. This facility can be availed for further period of 5 years on the expiry of 20th years and yet another 5 years on the expiry of 25 years and so on. The option should be exercised within 1 year after expiry of 15 years or the extended block period by applying in Form H.
Subscribers who continue their account after 15 years, with fresh subscription, can make one withdrawal per year subject to the condition that the total of the withdrawals during a block period shall not exceed 60 percent of the balance to their credit at the commencement of the extended period.

Tax benefit
The amount deposited and interest earned on it (including interest during the extension period) is completely exempted from income tax under Section 10(11) and the entire deposit in the account is exempted from wealth tax.
The annual contribution upto Rs 70,000 is eligible for tax deduction under Section 80C. Tax deductions can also be claimed on contributions made during the extended period provided the option to continue is exercised within one year of expiry of 15 years (or the extended block period).

Protection from attachment
PPF cannot be attached under any order or decree of court.