Till
date, the Public Provident Fund (PPF)
scheme is the most popular investment in India. If you're looking for an
exemption on the money you invest, interest that is non-taxable and a maturity
amount that is exempt from tax as well, this is the instrument for you.
So
it's no surprise that with these very prominent benefits, almost every
individual in the country has a PPF account and contributes to it religiously
every year.
But
do you really have total PPF knowledge? Are you aware of interest rate changes
in the PPF over time? Do you know that this money can never be attached to any
debt or liability i.e. it is yours forever? There are many ways in which you
can derive the maximum benefit from your PPF account.
Let's
get straight to the facts...
1.
PPF
stands for Public Provident Fund - a government backed, long term, retirement
savings instrument.
With a 15 year lock in, this is the longest horizon for
an investment that exists in India. If you are keen on a safe investment, a
decent rate of return, tax benefits (deduction and tax free interest) and have
a long term investment horizon, then the PPF is for you. It is a disciplined
investment avenue as your money is blocked for 15 years. PPF also offers loan
against the account which can help you during occasions like a wedding in the
family, further studies of your children, etc.
2.
The
main features are:
a. the 15 year lock in,
b. the E-E-E status (tax exemption on investment,
interest and maturity) under Section 80C,
c. the minimum investment of Rs. 500 p.a. and
maximum of Rs. 1.5 lakh p.a. (as per FY 2014-15 Union Budget)
d. and the interest rate which currently stands at
8.70% for this fiscal year. The interest rate will be announced annually, it is
no longer fixed at 8% p.a. In fact, the PPF interest rate has steadily dropped
over the years, and can be expected to slowly fall as the years proceed. Here’s
a look at what rates used to be in the hey-days of the PPF account:
Period
|
Interest
Rate p.a.
|
01 April 1986 - 14
Jan 2000
|
12.00%
|
15 Jan 2000 - 28
Feb 2001
|
11.00%
|
01 March 2001 - 28
Feb 2002
|
9.50%
|
01 March 2002 - 28
Feb 2003
|
9.00%
|
01 March 2003 - 30
Nov 2011
|
8.00%
|
01 Dec 2011 - 31
March 2012
|
8.60%
|
01 April 2012 till
date
|
8.70%
|
3.
An
NRI can't open a PPF account.
The rule of 25th July, 2003 states that 'Non Resident
Indians are not eligible to open an account under the PPF Scheme'. However
'Provided that if a resident who subsequently becomes a Non Resident during the
currency of the maturity period prescribed under the PPF scheme may continue to
subscribe to the Fund till its maturity, on a Non Repatriation Basis.' So if
you open it as an RI, and during the 15 year tenure become an NRI, you can continue
to invest, but on a non-repatriable basis.
4.
Number
of yearly transactions:
You can make up to 12 investments in a year into your PPF
account, in multiples of Rs. 5, but only one withdrawal in a fiscal year as discussed
in point no 7 below
5.
Account
mobility:
You can transfer your account from one 'Account Office'
to another for example for convenience if you shift home. You don't have to be
stuck with the inconvenience of a PPF Account in one city, while you are in
another.
6.
When
to invest:
The best time to invest is between the 1st and the 5th of
any month, preferably April each year. Interest is calculated for the calendar
month on the lowest balance at credit of your account, between the close of the
5th day and the end of the month, and is credited at the end of every year. But
keep in mind, this rule has recently been tweaked.
So no not only do you have to invest, but your deposit
has to clear and the money has to hit your PPF account on or before the 5th of
the month, for it to be considered for interest payment in that month.
7.
Regarding
withdrawals from your PPF account, there are 2 things you need to know:
a) Any time after the expiry of the 5th year from the
date that the initial subscription is made, you become eligible to withdraw an
amount of not more than 50% of the previous year's balance or of the 4th year
immediately proceeding the year of withdrawal, whichever is less. If you have
taken any loan on your PPF, this also gets factored in and reduces your
balance.
b) You cannot make more than a single withdrawal in the
year. You need to apply with Form C for any withdrawals.
8.
You
can close your account or continue your account without deposits after
maturity.
This is something not many people know. People usually
assume that once your 15 year period is over, you either have to extend by a 5
year block and continue making deposits, or you have to close your account. But
there is a third option. Any time after your account matures i.e. after the 15
year tenure is over, you can withdraw the balance using Form C. but this does
not have to be done immediately. As long as the funds lie in your
account, interest will continue to be paid on your account and you will receive
the total amount including interest up to the last month preceding the month in
which you apply for a withdrawal.
9.
You can continue your
account with deposits after maturity i.e. you can extend your account.
Few people know this, but the PPF account has no limit on
how many times it can be extended after the initial 15 year block matures. Yes,
there is a 15 year lock in, but then you can extend it for periods of 5 years
at a time, indefinitely. Your account continues to operate normally i.e. you
make deposits of up to Rs. 1 lakh, earn interest and renew after 5 years if you
wish. Everything remains E-E-E. To extend by a block of 5 years, use Form H.
Keep in mind that banks themselves are not aware that
there is no limit on the extension. If you ask the bank official, you will
likely be informed that you can extend it only twice, for 2 blocks of 5 years
each. However there is no such limit announced by the Government.
If you choose to leave your funds in the account, they
will continue to earn interest for as long as they lie in the account. Interest
will continue to be paid on your account and you will receive the total amount
including interest up to the last month proceeding the
month in which you apply for a withdrawal, using Form C.
10. You
can withdraw, even if you choose to extend...
If you choose to extend by subscribing for a 5 year
block, you can make partial withdrawals (using Form C again) of up to 60% of
the amount standing at your credit at the beginning of this 5 year block
period. So you do have some degree of liquidity.
11. At
any point in your life, you are allowed to have only 1 PPF account in your
name.
You can also have an account in the name of a minor child
of whom you are the parent / guardian. However that will be the child's
account, you will simply be the guardian.
If at any time it is seen that you have more than 1
account in your own name, the second account will be deactivated, and only your
principal will be returned to you. You cannot have more than 1 PPF account in
your name.
12. Is
Loan facility available on PPF account
If
you choose to take a loan against your PPF account, you can repay it within 36
months from the
1st day of the month following the month in which the loan was sanctioned. So,
if your loan is sanctioned in June 2012, the following month is July 2012, and
you have until end July 2015 to repay your loan. The interest rate charged is
2% p.a. over the prevailing PPF interest rate.
Conclusion
There's a lot to know that can help you know more about your PPF account. And if past rate
changes is anything to go by, you can expect 8.70% interest to not last
forever. As it stands today, the PPF remains E-E-E, so if you don’t have a PPF
account, then go for it and make the most of it to add to your retirement
corpus.
Article Submitted by:
Mr. Sumit Grover
Advocate
No comments:
Post a Comment