PPF is one of the oldest and most popular investment instrument in India. It is also one of the favorite investment options for the salaried people as they get the tax benefit. The rate of return is 8% which is higher than the rate of bank fix deposits. Today we will discuss various PPF account rules that you need to know.
As per the income tax act, PPF account comes under EEE (Exempt-Exempt-Exempt) category. It means that you don’t have to pay tax on the interest you earn from this account. There will be no tax on the amount you withdraw or close the account. Here is the list of interesting facts about PPF account that you should know.
PPF Account Rules you should know
PPF account is non-attachable
PPF account is the only one asset which cannot be attached for paying off debt or any other liability. The account is completely secure and not even a court can attach the account in case you go bankrupt. So this account assures that your hard earned money is safe with you. This is the main reason many businessmen keep this account in their own and their family members name to protect their wealth. So even if the business suffers loss and you have to wind up the business, this account will remain intact. No one can attach this account for paying off any debt. The only exception here is the Income Tax Department who can recover any pending tax dues from your PPF account.
You can deposit as low as Rs. 500 and as high as Rs. 1.5 lakh per year. This deposit can be monthly or yearly as per the current PPF account rules. So you can divide your deposit into monthly or quarterly installments. There is no limit on the number of deposition per year as long as you are depositing within the prescribed limits. The PPF account is for 15 years so if you are depositing any amount in the last year, that will get mature for withdrawal on the completion of one year from the date of your last deposit. For example, you are depositing on 1 December 2018, so your calculation of 15 years will start from 1st April 2019 and hence 15 years from that comes to 1st April 2034. So you should know the exact maturity date/withdrawal date of your account.
As I mentioned above, PPF account comes under EEE category. So you don’t have to pay any income tax on the interest earned on PPF account. However, you have to make a simple declaration at the time of income tax filing for the year in which you have withdrawn the amount from the PPF account.
Partial Withdrawal Option
PPF account comes with a lock-in period of 15 years. However, you can withdraw a certain portion of the corpus at the stipulated time under a specific condition. There is two option, one is to withdraw the corpus and second is the taking loan against the PPF corpus. One has to decide what he wants to do. For the loan, you have to pay 2% interest of the interest you are earning on PPF account. This interest will go to the government and the principal amount will be credited back to your PPF account. In another word, you will get 2% less interest on your PPF account as long as you pay off the loan amount.
On completion of 7 years, you can withdraw the partial amount from your PPF account. you can withdraw only once in a year. Moreover, if you are doing a withdrawal, you will no longer be eligible for the loan against your PPF account.
PPF Joint Account
As per the PPF account rules, you cannot have a joint account. The ownership the PPF account must be individual. But the parents can open an account on behalf of their minor child. However, both parents cannot have a separate account. This rule applies to the guardian as well. Once the minor becomes 18 years of age, he will become the owner of the account.
As per the PPF account rules, an investor can nominate only a minor to his PPF account. If the account is already in the name of a minor, there is no provision for making any nominee.
Dormant PPF Account
If you forget/stop to invest a minimum yearly amount into PPF account, it will be declared as discontinued/suspended account. Once the account is suspended, you can not deposit any amount into the account. However, you can withdraw the amount on account maturity. You can avail loan against the suspended account. For availing the loan, you need to pay the minimum amount for the discontinued period and the penalty charges as per the PPF account rules.
PPF Account Extension after Maturity
You can extend the PPF account in the block of 5 years from the date of maturity. Means, you can add five more years to the PPF account at once and you can add this as many times as you want. You will continue to get the interest as per the prevailing rates and you can withdraw up to 60% of the amount in the account once in a year. Remember, you have to apply for the extension before the maturity date of the account.
So take your investment decision after contemplating the above points which might be helpful in your investment decision. You might also want to check Which is the best tax saving option PPF, NPS, ELSS?