We all do savings generally because practically we cannot predict the future. Saving help you become financially independent and provide you a safe play in events of contingencies. While a number of saving & investment schemes are already there in the economy for common man, it is difficult to compare them all for assured future returns considering the risk factor in it. To help the common man save a bit of his income with no risk fluctuations in investment, the government introduced the first-ever Public Provident Fund Scheme in 1968.
With effective returns and tax savings, the scheme offered a secured investment opportunity for people to invest and receive an assured amount at the end of a certain period or whenever they required the amount to withdraw.
Seeking the success of the scheme over 5 decades, the government on 12th December 2019 notified vide G.S.R. 915(E), for some essential changes and giving additional benefits in the scheme, which is titled as Public Provident Fund Scheme, 2019. To know the norms of the new PPF scheme, we’ll suggest you go throughout this post.
#1 What is the Public Provident Fund?
Public Provident Fund (“PPF”) is an investment plan open to the common public to put their small savings to a separate account which grows over time with interest and some special return benefits. Usually, the investment tenure in PPF is 15 years, while it can be extended to 5 years or in a block of 5 years.
A PPF account can be opened with any nationalized bank or registered post office. On maturity, at the discretion of the account holder, the account can be closed and the full amount along with interest can be withdrawn. In between, the person can partially or fully invest the amount held in any PPF account in any other investment schemes announced by the government.
- PPF provides an attractive interest rate which is generally more than provided in a Saving/Fixed deposit Account.
- PPF is a long term investment to be made for a minimum tenure of 15 years.
- Deposits can be made in PPF to as low as Rs 500 to a maximum of Rs. 1,50,000 in a financial year.
- Loan against PPF can be availed between the 3rd to 6th financial year.
- Partial withdrawal from PPF can be availed after completion of 5 financial years.
#2 About the PPF Scheme, 2019.
The Scheme was notified on 12th December 2019 through Section 3A of the Government Saving Promotion Act, 1873 and is inclusive of and states for the following provisions:
- Limit over account holding:
Any individual opting for PPF Scheme, 2019 shall get his account opened with the Form 1. A single account for minor or for a person of unsound mind can also be opened by the guardian of that person. The scheme does not allow the opening of Joint accounts.
- Limit oversubscription:
The minimum amount to opt for the scheme is Rs. 500 which shall extend up to a maximum of Rs 1, 50,000 in multiples of 50 in a single year (Financial Year). The limit of Rs 1, 50,000 shall be inclusive of the total contribution made by the person in his own account and the account opened by him on behalf of a minor.
#3 Way of deposit:
The minimum amount of Rs 500 has to be deposited to start PPF. Later, any amount in multiples of Rs 50 can be deposited. The amount can be either deposited in a lump sum or in installments.
#4 Discontinuation of investment:
- The default for payment of PPF in any year shall put the account status to ‘discontinued’.
- Any amount invested in the initial years shall continue to earn interest at a rate specified in the scheme.
- A discontinued account can be revived during its maturity after payment of a penal fine of Rs 50 for each year of default along with arrears of defaulted years.
- A person already owing a discontinued account in PPF shall not be allowed to open a fresh account.
- No loans or facility of partial withdraw shall be granted to discontinued accounts.
- The total amount receivable at maturity after revival shall be inclusive of all arrears paid but not the penal fine imposed on the account holder.
#5 Loans against investment:
- Before completion of 5 years and after a year from the year of initial contribution to PPF, the account holder using Form – 2 can apply for a loan of about 25% of the amount standing in a credit of his account.
- For minor or person of unsound mind, the guardian has to prove the purpose of the loan to be taken only for benefit of the account owner.
- No fresh loan shall be provided until the repayment of past loans with interest.
- The holder shall be permitted to take only one loan in a year.
- The loan is to be paid by the account holder within 36 months from the month in which the loan was sanctioned.
- After full payment of loan amount, interest can be paid in only 2 monthly installments at a rate of 1% of the principal amount.
- For non-repayment within 36 months, the interest shall be charged at the rate of 6% instead of 1%.
- The interest amount shall accrue to the Central government by the account holder.
- In case of the death of the account holder, the interest amount shall be paid by the legal heir of the account holder.
#6 Withdraw of PPF Amount:
- Withdrawal from the scheme within 5 years after the year of initial contribution, can be made using Form – 2 of not exceeding 50% of the amount
- For withdrawal from the account of minor or person of unsound mind, the purpose of the withdraw shall have to be justified for the account owner.
#7 Closure of PPF Account:
- At any time after completion of 15 years, the account holder can opt for withdrawing of PPF and closure of account using Form – 3.
- The account holder can also opt to retain his PPF balance in the PPF account and continue to enjoy the interest benefit.
- If the account is continued without deposits for more than a year, the option to make further deposits in the account shall be disabled.
- The account holder or guardian of a PPF account can also apply for premature closure of account using Form – 5, only in cases of health treatment of self, children or dependents, higher education purpose, on change of residency or other cases as may be notified with the due submission of proof of purpose for closure.
- In case of the death of the account holder, the legal heir should continue the account payments and will receive the amount on maturity.
- The amount standing to the credit of PPF shall be liable to any attachment on terms of any order or decree against any loan or credit taken by the account holder.
#8 Perks of PPF Investment
- It assures the safe play of investors, as the amount is kept secured with government and guaranteed return benefits are linked.
- Tax saving for up to Rs 1.5 lakhs can be made for both the principle and the interest amount as per Section 80C of Income Tax Act.
With just channeling your funds from a normal bank account to a special PPF account you become eligible to a great tax saving of Rs 1.5 lakh along with guaranteed interest income. So, better do it today
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