Public Provident Fund | A Complete Guide

What is PPF?

Public Provident Fund (PPF) is a savings-cum-tax-saving investment scheme introduced by the Government of India. It is designed to encourage individuals to save for their retirement while also offering tax benefits. PPF accounts can be opened by resident Indian individuals, including minors, and provide a secure and long-term investment option.

Key Takeaways:

• PPF is a long-term savings scheme backed by the Indian government, designed to help individuals build a retirement corpus.
• Contributions to PPF are eligible for tax deductions under Section 80C of the Income Tax Act, making it a popular tax-saving instrument.
• The interest rate on PPF is set by the government and is typically higher than bank savings rates. The current interest rate is 7.1%
• PPF has a mandatory lock-in period of 15 years. However, partial withdrawals are allowed from the 7th year onwards.
• Investors can deposit a minimum of ₹500 and a maximum of ₹1.5 lakh per financial year into their PPF account.

How does the PPF Account Work?

• Opening an Account: To open a PPF account, individuals need to visit designated banks, post offices, or authorized online platforms. They need to fill out the PPF account opening form, provide KYC documents, and make an initial deposit.
• Investment Limit: The minimum annual investment in a PPF account is ₹500, while the maximum is ₹1.5 lakh. Deposits can be made in a lump sum or a maximum of 12 installments per year.
• Tenure and Maturity: The PPF account has a maturity period of 15 years. However, individuals have the option to extend the account indefinitely in blocks of 5 years each, with or without making further contributions.
• Interest Rate: The interest rate on PPF deposits is set by the Government of India and is compounded annually. It is subject to periodic revision. As of now, the interest rate is 7.1% per annum (FY 2024-2025).
• Tax Benefits: Contributions made to a PPF account are eligible for tax benefits under Section 80C of the Income Tax Act, up to a maximum of ₹1.5 lakh per financial year. Additionally, the interest earned and the maturity proceeds are tax-free.
• Loan Facility: From the 3^rd financial year up to the 6^th financial year, individuals can avail of loans against their PPF accounts. The maximum loan amount available is 25% of the balance at the end of the second year immediately preceding the year in which the loan is applied for.
• Partial Withdrawals: From the 7^th financial year onwards, individuals can make partial withdrawals from their PPF accounts, subject to certain conditions. The maximum amount that can be withdrawn in a financial year is capped at 50% of the balance at the end of the fourth year immediately preceding the year of withdrawal.
• NRI Accounts: If an individual becomes an NRI after opening a PPF account, the account can be continued until maturity, but further contributions are not allowed. The account will earn interest at the rate applicable to Post Office Savings Account until maturity.

How to open a PPF Account? (Online & Offline)

Online Method:

1. Visit Bank’s or Post Office’s Website: Check if the bank or post office where you wish to open a PPF account offers online account opening services. Most major banks in India provide online PPF account opening facilities through their official websites.
2. Fill out the Online Application Form: Navigate to the PPF account opening section on the bank’s or post office’s website. Fill out the online application form with accurate details such as personal information, nominee details, and KYC documents.
3. Upload KYC Documents: Scan and upload the required KYC documents as specified by the bank or post office. Ensure that the documents are clear and legible to avoid any delays in account opening.
4. Make the Initial Deposit: Once the online application form is filled out and KYC documents are uploaded, make the initial deposit amount required to open the PPF account. Payment can be made through online banking or any other accepted online payment method.
5. Confirmation and Receipt: After successfully completing the online application process and making the initial deposit, you will receive a confirmation of account opening along with an account number. You may also receive a digital copy of your PPF passbook, which contains details of your account.
6. Visit Bank or Post Office (Optional): Some banks or post offices may require you to visit their branch to verify documents or complete additional formalities. Follow any instructions provided by the bank or post office to ensure smooth processing of your PPF account.

Offline Method:

1. Visit a Designated Bank or Post Office: To open a PPF account offline, visit a designated bank branch or a post office that offers PPF account services. Most major banks and all post offices in India provide this facility.
2. Fill out the Application Form: Obtain the PPF account opening form from the bank or post office. Fill out the form with accurate details such as name, address, nominee details, and KYC (Know Your Customer) documents.
3. Provide KYC Documents: Submit the required KYC documents along with the filled-out application form. Typically, documents such as PAN card, Aadhaar card, passport, voter ID, or driving license are accepted as proof of identity and address.
4. Make the Initial Deposit: Make the initial deposit amount required to open the PPF account. The minimum deposit amount is ₹500. Payment can be made in cash, by cheque, or through online transfer, depending on the facility available at the bank or post office.
5. Receive PPF Passbook: After completing the account opening process and making the initial deposit, you will be issued a PPF passbook. The passbook contains details of your PPF account, including the account number, name, address, and transactions.

How to take a loan against PPF?

Taking a loan against your PPF (Public Provident Fund) account involves a straightforward process. Here are the steps to follow:

1. Check Loan Eligibility: Ensure that you meet the eligibility criteria for availing a loan against your PPF account. You can avail of a loan from the 3^rd financial year up to the 6^th financial year from the opening of the account.

2. Visit the Bank or Post Office: If you want to take a loan against your PPF account, visit the bank or post office where you hold your PPF account. Ensure that the bank or post office provides loan facilities against PPF accounts.

3. Fill Out Loan Application Form: Obtain the loan application form for availing a loan against your PPF account. Fill out the form with accurate details, including the loan amount you wish to avail of and the purpose of the loan.

4. Submit Required Documents: Along with the loan application form, submit any additional documents required by the bank or post office. Typically, you will need to provide your PPF passbook and proof of identity/address.

5. Loan Amount Calculation: The maximum loan amount you can avail of is 25% of the balance in your PPF account at the end of the second financial year immediately preceding the year in which the loan is applied for.

6. Loan Disbursement: Once your loan application is processed and approved by the bank or post office, the loan amount will be disbursed to your linked bank account or provided as a demand draft, as per the bank’s or post office’s procedure.

7. Repayment Terms: Repayment of the loan against your PPF account must be made within a specified period, typically within 36 months from the first day of the month following the month in which the loan was sanctioned.

8. Interest Rate on Loan: The interest rate charged on the loan against your PPF account is usually 1% to 2% higher than the interest rate earned on your PPF deposits. The exact interest rate may vary depending on the policies of the bank or post office.

9. Interest Payment: The interest on the loan must be paid along with the principal amount in equated monthly installments (EMIs) or as per the repayment schedule provided by the bank or post office.

10. Maintain PPF Account: It is important to note that even after availing of a loan against your PPF account, you must continue to maintain your PPF account and fulfill the prescribed deposit requirements to keep it active and avoid any penalties.

How do you Withdraw the PPF Amount?

To withdraw the amount from your Public Provident Fund (PPF) account, you need to follow these steps:

1. Check Maturity: PPF accounts have a maturity period of 15 years. You can withdraw the entire amount only after the completion of this period.

2. Fill Withdrawal Form: Visit the bank or post office where your PPF account is held and obtain the PPF withdrawal form. Fill in the required details accurately.

3. Submit Documents: Along with the withdrawal form, submit your PPF passbook and any other necessary documents as per the bank or post office’s requirements.

4. Specify Withdrawal Amount: Indicate the amount you wish to withdraw. You can choose to withdraw the entire balance or a partial amount, but ensure it complies with the PPF withdrawal rules.

5. Signatures: Sign the withdrawal form and any other documents as required.

6. Process Time: The withdrawal process typically takes a few days to be completed. The amount will be credited to your linked bank account or provided to you as per your instructions.

7. Tax Implications: Keep in mind the tax implications of PPF withdrawals. While the principal amount and interest earned are tax-free, if you withdraw before the completion of five years, the interest earned becomes taxable.

8. Closure of Account: If you withdraw the entire amount, your PPF account will be closed. If you wish to keep it active, ensure that the minimum balance requirements are maintained.

9. Keep Records: Maintain records of the withdrawal transaction and any related documents for future reference.

Tax Benefits of Investing in PPF

1. Tax Deduction under Section 80C: Contributions made to a PPF account are eligible for a tax deduction under Section 80C of the Income Tax Act, 1961. Investors can claim a deduction of up to ₹1.5 lakh in a financial year for the amount invested in their PPF account. This deduction is available for both individual taxpayers and Hindu Undivided Families (HUFs).

2. Tax-Free Interest: The interest earned on the investment in a PPF account is exempt from tax. The interest is compounded annually and credited to the account at the end of each financial year. This tax-free compounding helps in the accumulation of wealth over the long term.

3. Tax-Free Maturity Proceeds: The maturity proceeds, including the principal amount and accumulated interest, are entirely tax-free. When the PPF account completes its maturity period of 15 years, the investor can withdraw the entire balance without any tax liability.

4. No Wealth Tax: The balance in a PPF account is not considered for the calculation of wealth tax. This means that the amount invested in a PPF account and the accumulated balance over the years are exempt from wealth tax.

5. No Capital Gains Tax: Since PPF investments are considered as debt instruments, there is no capital gains tax applicable at the time of withdrawal. Whether the investor withdraws the entire amount or makes partial withdrawals during the tenure, there is no capital gains tax liability.

6. Nominee Benefits: In the unfortunate event of the investor’s demise, the nominee(s) of the PPF account can claim the maturity proceeds without any tax liability. The tax benefits associated with the PPF investment extend to the nominee(s) as well.

7. Loan Facility without Tax Implications: Investors can avail of loans against their PPF accounts from the 3^rd financial year up to the 6^th financial year. The loan amount is tax-free and can be utilized for various purposes without any tax implications.

Process to Close a PPF Account

Closing a Public Provident Fund (PPF) account involves a few steps:

1. Check Maturity: Determine if your PPF account has completed its maturity period. The maturity period for a PPF account is 15 years from the end of the financial year in which the account was opened.

2. Visit Bank/Post Office: Visit the bank or post office where your PPF account is held. Inform them of your intention to close the account.

3. Fill Closure Form: Obtain the PPF account closure form from the bank or post office. Fill in the required details accurately.

4. Submit Documents: Along with the closure form, submit your PPF passbook and any other necessary documents as per the bank or post office’s requirements.

5. Clear Dues: Ensure that all dues, if any, such as pending loan repayments against the PPF account, are cleared before closure.

6. Signatures: Sign the closure form and any other documents as required.

7. Receive Balance Amount: Once the closure request is processed, the balance amount in your PPF account will be paid to you. You can choose to receive it through a demand draft, electronic transfer to your linked bank account, or any other mode specified by the bank or post office.

8. Tax Implications: Be aware of the tax implications of closing a PPF account. The principal amount and interest earned are tax-free, but if you close the account before completing five years, the interest earned becomes taxable.

9. Keep Records: Maintain records of the closure transaction and any related documents for future reference.

10. Confirm Closure: Ensure that the PPF account is closed successfully by verifying the closure entry in your PPF passbook or through any other communication from the bank or post office.

Process to Transfer a PPF Account

The process to transfer a PPF (Public Provident Fund) account involves the following steps:

1. Visit the Current Bank/Post Office: The account holder needs to visit the bank branch or post office where the current PPF account is held.

2. Obtain Transfer Request Form: Request the transfer application form (Form SB10-b) from the bank or post office. This form is specifically used for transferring PPF accounts.

3. Fill Out the Transfer Form: Fill out the transfer request form accurately with all required details. Ensure that the information provided matches the details of the current PPF account.

4. Submit Necessary Documents: Along with the transfer request form, submit necessary documents such as:

• PPF passbook or account statement.
• Proof of identity/address (as per KYC norms).
• Any other documents as required by the bank/post office.

5. Specify Details of the New Bank/Post Office: In the transfer form, specify the details of the new bank branch or post office where the PPF account is to be transferred. This includes the name and address of the new branch/post office.

6. Initiate Transfer Request: Submit the completed transfer request form along with the required documents to the current bank branch or post office. The bank/post office will initiate the transfer request process.

7. Verification and Processing: The current bank/post office will verify the transfer request and ensure that all details are accurate. They will then process the request for transferring the PPF account to the specified new branch/post office.

8. Receive Acknowledgment: Upon successful initiation of the transfer request, the account holder will receive an acknowledgment or receipt from the current bank/post office. This may include a reference number for tracking the status of the transfer.

9. Completion of Transfer: The transfer of the PPF account typically takes a few weeks to be completed. Once the transfer is processed, the account holder will receive confirmation from the new bank branch/post office.

10. Update Passbook/Statement: After the transfer is completed, the account holder should visit the new bank branch/post office to update the PPF passbook or obtain a new passbook reflecting the transferred account details.

List of Banks Offering PPF Account

In India, several banks offer the facility to open a Public Provident Fund (PPF) account. Here is a list of some major banks where you can open a PPF account:

1. State Bank of India (SBI)
2. Punjab National Bank (PNB)
3. Bank of Baroda (BOB)
4. Canara Bank
5. Union Bank of India
6. HDFC Bank
7. ICICI Bank
8. Axis Bank
9. Bank of India (BOI)
10. Indian Bank

Difference between PPF and EPF

Basis	Public Provident Fund (PPF)	Employee Provident Fund (EPF)
Meaning	It is a long-term savings scheme offered by the Government of India with the primary objective of encouraging individuals to save for their retirement.	It is a mandatory savings scheme for salaried employees in India, under which both the employee and the employer make contributions towards the provident fund account.
Type	It is a voluntary savings scheme available to all individuals.	It is a mandatory savings scheme for salaried employees.
Eligibility	PPF is open to all resident individuals, including salaried employees.	EPF is applicable to salaried employees only.
Purpose	Its purpose is to maintain long-term savings for retirement and enjoy tax benefits.	It aims at retirement savings, provident fund for employees, and social security.
Contribution	The account holder makes the contribution.	The employer and the employee makes the contribution.
Contribution Limit	Minimum Limit: ₹500 per year Maximum Limit: ₹1.5 lakh per year	1,800 or 12% on the basic pay and dearness allowance, whichever is lower.
Interest Rate	The current interest rate set by the Government of India is 7.1% (FY 2024-2025)	The current interest rate set by EPFO for the year 2023-2024 is 8.25%
Tenure	PPF has a minimum tenure of 15 years, which can be extended in blocks of 5 years according to the individual’s wish.	The account remains active as long as the individual is employed.
Portability	It is not portable as account cannot be transferred between individuals.	It is portable as account can be transferred between employers or regions.

Public Provident Fund – FAQs

Who is eligible to open a PPF account?

Any resident Indian individual, including minors, can open a PPF account. Non-resident Indians (NRIs) are not eligible to open a new PPF account, although they can continue to maintain accounts opened before becoming an NRI until maturity.

What is the minimum and maximum investment allowed in a PPF account?

The minimum annual investment in a PPF account is ₹500, while the maximum is ₹1.5 lakh. Deposits can be made in a lump sum or in a maximum of 12 installments per year.

What happens to my PPF account if I become an NRI?

If an individual becomes an NRI after opening a PPF account, the account can be continued until maturity, but further contributions are not allowed. The account will earn interest at the rate applicable to Post Office Savings Account until maturity.

Are PPF contributions eligible for tax benefits?

Yes, contributions made to a PPF account are eligible for tax benefits under Section 80C of the Income Tax Act, 1961 up to a maximum of ₹1.5 lakh per financial year.

Can I take a loan against my PPF account?

Yes, you can avail of loans against your PPF account from the 3rd financial year up to the 6th financial year. The maximum loan amount available is 25% of the balance at the end of the second year immediately preceding the year in which the loan is applied for.