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Frequently asked questions on Public Provident fund (PPF): the complete guide


12 Jun 2022 - Contact Sayan Sircar
21 mins read

This article compiles an exhaustive list of FAQs for Public Provident fund (PPF).

Frequently asked questions on Public Provident fund (PPF): the complete guide

FAQ: Public Provident Fund (45)

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What is the public provident fund?

As per Wikipedia, the Public Provident Fund (PPF) is a savings-cum-tax-saving instrument in India introduced by the National Savings Institute of the Ministry of Finance in 1968. PPF allows you to save small sums of money, offers a guaranteed interest rate and tax benefits that make it attractive for many conservative investors. PPF is a fantastic debt instrument which has guaranteed return (though it keeps falling) but it is still higher than the market rate in other options. Since there is a 15 years lock-in (which can be extended in blocks of 5 years) and to keep the account active you need only ₹500/year, open it and keep it active. Later when you need to invest more for long term debt, both the maturity of PPF will be closer and you will have many options. You can open PPF in your own name plus in the name of parents if they don’t have already. When you get married and have children, repeat this for spouse and children.


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Can HUF contribute to PPF?

A HUF can contribute up to 1.5 lakhs/year in the PPF accounts of its members and claim deduction under Section 80C for itself.


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Can NRIs open or have PPF account?

Two restrictions exist for NRIs

  • an NRI cannot open a new PPF account but existing accounts can be continued. NRIs can contribute to an existing PPF account from both NRO and NRE account
  • NRIs cannot extend the PPF account post maturity after 15 years NRIs can continue the account with further contributions on non-repatriable basis


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Can PPF account be held jointly?

PPF account cannot be held jointly.


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Can PPF account get attached under court order?

PPF has the unique distinction that it cannot get attached under any order or decree of court under the Government Savings Banks Act, 1873. This means that PPF account balance cannot be ordered to pay off a debt by a court. However, if it is a case of non-payment of tax, only then the account can be attached.


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Can PPF be used in the higher education of children?

A PPF account, due to the safety of returns, may be used for higher education of children if the expense is planned after the account matures. If the degree cost is due before the account is 15 years old, premature closure is allowed if the account is more than five years old. The maturity balance is calculated on a rate that is 1% lower in such cases. Parent’s should carefully look at their own risk profile and check if PPF should be suitable for their children’s goals vis-a-vis using it for their own retirement. Also, the returns of PPF, although guaranteed, are well below inflation applicable to education goals (typically 10% or more) and only PPF investing will not suffice on its own.


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Can you invest in PPF via NEFT?

A PPF account can be mapped for fund transfer using NEFT. ECS mandates and standing instructions are also supported from your existing bank account. If you are using automation via ECS or SI then ensure the investment happens before the 5th of the month.


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Can you take loan against PPF account?

You can take a personal loan against your PPF account balance with the following terms and conditions:

  • the loan must be repaid in 36 months in either a lump sum or via monthly installments
  • there is no collateral needed
  • the rate of the loan is 1% only but inability to pay off the loan bumps up the interest rate to 6%
  • the PPF account age must be between third and sixth financial year
  • the maximum loan amount is capped at 25% of the balance in the account at the end of the second financial year
  • while the loan is active, the balance in the PPF account does not get any interest


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Do you always get tax exemption on PPF investment?

The tax deduction on PPF investment is a part of the ₹150,000 limit under Section 80C. If you have multiple eligible investments, the maximum you will get as a deduction is capped at ₹150,000. Just because you may or may not get 80C deduction is not a reason to either invest or not invest in PPF. Investment in PPF should be based on the financial goals of the investor.


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Do you need a bank account to open PPF account?

It is not mandatory to have a bank account in the same bank or post-office where you are opening the PPF account. The bank might insist on opening a new account at the time of opening the PPF account though. In case you are planning to invest multiple times a year, you can use NEFT or ECS mandate from your bank account in any other bank.


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Does PPF allow premature account closure?

PPF allows closure of the account, which is different from premature withdrawal, under certain circumstances. If the account is prematurely closed, the withdrawable balance is calculated at a rate of interest 1% lower than the current PPF rate and is allowed after five years have passed since account opening. PPF account can be prematurely closed if:

  • account holder, or spouse or children or parents have a terminal disease
  • the account holder becomes NRI
  • the money is to be used for higher studies In all of these cases, relevant supporting evidence and documentation is to be provided.


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Does PPF allow premature withdrawal?

PPF allows premature withdrawal before 15 years maturity under certain conditions:

  • At least five financial years have passed since the account opening date
  • Withdrawable amount is the lower value of either 50% balance at the end of the fourth financial year or 50% of the balance at the end of the preceding year


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Does PPF have compounding?

PPF interest is calculated on the balance which is the minimum of that between the 5th to the end of every month. This balance figure includes the total principal invested and the accrued interest up to that date. Therefore PPF compounds your money.


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Does PPF have nomination facility?

A PPF account offers nomination and you can have up to four nominees. The total share of all the nominees must add up to 100%. Only PPF account of minors do not have nomination. Accounts opened after 2019 have the option of choosing nominees to be either a Trustee (where the nominee does not have a claim on the account and instead is just an executor) or Owner (where the nominee has a claim as the owner of the assets)


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Does the rate of interest of PPF change with time?

The Ministry of Finance declares PPF rates every quarter along with other small savings schemes like SCSS, NSC, KVP, Sukanya Samriddhi Yojana as well as Post Office deposits. It is expected that as the economy matures, PPF rates will also come down. Historically, PPF rates over the decades have been the following:

  • 4.8 - 7.5% in the 1970s
  • 7.5 - 12.0% in the 1980s
  • 12.0% in the 1990s
  • 12.0 - 8.0% in the 2000s
  • 8.0 - 7.9% in the 2010s
  • 7.9 - 7.1% in the 2020s


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How can you make PPF deposits?

PPF deposits can be made online via Netbanking or offline via cash, cheque or demand draft.


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How is interest calculated for PPF?

The Ministry of Finance declares PPF rates every quarter. That interest rate is used to calculate the applicable interest every month based on the balance which is the minimum of that between the 5th to the end of every month. This the reason you should invest before 5th of the current month instead of after. The interest is credited on 31st March. If you have 10000 in the account on 5th May, and the rate of interest is 7%, then the new balance is 10000 * (1+7%/12) = 10058 as calculated after 31st May. If you invest 1000 on 15th May and nothing else after that then this new 1000 is not considered in the May balance but will be included in the June balance. If the rate changes to 7.1% on 1st Jul (after Q2 end), then from 5th Jul onwards, 7.1% is the rate used to calculate the new interest. The total interest thus calculated is credited on 31st Mar next year.


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How is tax on PPF calculated?

PPF is an “Exempt-exempt-exempt” or EEE investment from tax perspective. This rule means that:

  • Exemption 1: investments are tax deductible under Section 80C up to ₹150,000/year
  • Exemption 2: interest is tax free
  • Exemption 3: maturity amount is tax free


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How much can you invest in PPF in a year?

There are a few things to keep in mind here:

  • investment year is as per financial year i.e. 1st Apr to 31st Mar
  • you have to invest a minimum of once a year. You should not skip investing in any year
  • you can to invest any number of times in a year (increased from an earlier cap of 12 times/year)
  • you have to invest in multiples of ₹50
  • you have to invest a minimum of ₹500 a year
  • you can invest a maximum of ₹150,000 a year


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How much return can we get in PPF?

PPF returns are unpredictable since the interest rate changes as per decisions made by the Ministry of Finance. Also not everyone invests the same amount every year. To get a general idea, if we assume that someone invests ₹150,000/year and the rate is 7% throughtout then they will have, after extending the account constantly:

  • 40.3 lakhs in 15 years
  • 65.8 lakhs in 20 years
  • 101.5 lakhs in 25 years
  • 151.6 lakhs in 30 years
  • 221.9 lakhs in 35 years
  • 320.4 lakhs in 40 years
  • 458.6 lakhs in 45 years
  • 652.5 lakhs in 50 years

This is just a simulation with 7% fixed rate. If we assume that the interest rate drops steadily by 0.1%/year, we get a slightly more realistic projection:

  • 37.3 lakhs in 15 years
  • 57.1 lakhs in 20 years
  • 80.8 lakhs in 25 years
  • 108.3 lakhs in 30 years
  • 138.8 lakhs in 35 years
  • 171.6 lakhs in 40 years
  • 205.1 lakhs in 45 years
  • 237.8 lakhs in 50 years


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How to open a PPF account?

A PPF account can be opened in a bank or the Post office. Since this scheme is managed by the Central Government, the choice of bank or post office, beyond convenience of operation and customer service, does not matter. Nowadays many banks offer online account opening via Netbanking as well. After the account is opened, you need to collect the passbook. For the offline process, the documents required are:

  • Identity proof
  • Address Proof
  • Passport size photographs
  • Nomination form


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How to revive a PPF account?

If you have not paid the minimum ₹500/year then the inactive account can be revived by:

  • paying ₹50 penalty for every inactive year
  • investing the minimum ₹500 for every inactive year


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How to transfer a PPF account?

A PPF account can be transferred from one bank / post office to the post office or another bank free of charge. The process is like this:

  • Source bank: obtain transfer form and cheque/Demand Draft drawn in the name of destination bank
  • Destination bank: provide the account opening documents and KYC


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Is PPF better than Sukanya Samriddhi for girl children?

A PPF account opened 15 years before the goal can be used for any goal. Sukanya Samriddhi Yojana has a 21 years lock-in which will make it unsuitable for UG college goals since only 50% can be withdrawn for higher education. Ultimately the choice will depend on the time left until account maturity. This is all the more reason that a PPF account should be opened as soon as the investor starts earning or even earlier as a minor.


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Is PPF good for retirement?

A PPF account can be used to accumulate a tax-free corpus for retirement goals. However, given the rate is around 7% now which is similar to inflation in the country, you will need inflation beating investments as well, for example in equity.


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Is PPF investment good for tax saving?

PPF investment is eligible under the ₹150,000 limit under Sec 80C. However, based on the personal circumstances, other options like ELSS mutual funds may be suitable. Investors should look at their entire financial plan holistically, given the 15 year lock-in, before choosing PPF for 80C.

Click here to read the related article.


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Is the PPF return guaranteed?

PPF returns are guaranteed by the Government of India.


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Is wealth tax applicable on PPF account?

PPF does not come under wealth tax. There is no tax of any sort on the maturity proceeds of the PPF account for a resident Indian. NRIs might have to pay tax based on the tax rules of their country of residence.


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Should you extend your PPF account?

PPF accounts will mature in 15 years but need not be closed immediately. A matured account will keep earning interest if there is any balance. The following rules govern PPF extension:

  • Option 1 is to Withdraw: You can withdraw the entire amount and close the account. To invest further in PPF in the future, you need to create a new PPF account which restarts the 15 year clock. Therefore even if you need the money, you should not close the account immediately. If you do not want to withdraw, you can extend the account and unlimited extensions are allowed in blocks of 5 years.
  • Option 2 is to Extend PPF without fresh investments: if you did not put in an extension request on time, i.e. within a year of the maturity date, then this option gets activated automatically. Partial withdrawals, up to the full balance of the account, are allowed once a financial year (Apr to Mar) but you cannot invest any new money. Investors should explicitly provide an instruction to the bank or post-office to avoid this situation
  • Option 3 is to Extend with fresh investments: if you wish, you can invest up to ₹1.5L/year after extension. 80C tax deduction is allowed on this investment. Up to 60% of the corpus can be withdrawn when you decide to extend for each five-year extension with fresh investments once every block of five years.

Click here to read the related article.


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Should you invest in PPF by 5th April?

PPF is an investment whose value does not decrease with time. This fact along with the rule that interest is calculated on the minimum account balance between the 5th and the end of month mean that investments in PPF should be made sooner rather than later. However, it does not imply that investors should rush to invest ₹150,000 or whatever they want to invest in PPF by 5th April. While investing early will maximise the interest received but there would be an opportunity cost of not investing in options like equity mutual funds. If you are investing in SIP form in equity funds for long term goals, the a better approach is to do a SIP in PPF as well so that you have enough available for other long term investments.


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Should you invest in PPF if your 80C is already filled?

There is no relationship between the need to save tax under 80C and investing in PPF. Many investors whose 80C are full via other means invest in PPF since it offers guaranteed tax-free returns. In general, if your monthly debt investment for your portfolio as per your goal-based investing plan exceeds ₹20,000/month, you can invest ₹12,500 in PPF which adds up to ₹150,000/year.


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Should you open PPF account in the name of your spouse?

Irrespective of whether your spouse is earning or not, you can:

  • ask them to open a PPF account in their name
  • gift them money for the purpose of investing in their PPF. They can also invest in PPF from their own income
  • they can claim 80C tax deduction only if the PPF investment is out of their own income. Gifted money is not income


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What are the government rules or acts under which PPF is governed?

PPF was setup under the National Savings Institute of the Ministry of Finance in 1968 under the Public Provident Fund Scheme, 1968 act. Currently the new rules of the Public Provident Fund Scheme, 2019 are in effect from December 2019.


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What happens on the death of PPF account holder?

On the death of the PPF account holder the following things happen:

  • the claim is initiated by producing a filled Form G to the bank or Post Office where the account is held
  • the amount (less any outstanding loan balance on loan taken on PPF) will pass on to legal heir. The nominee is just the executor of the account but may not necessarily be the legal heir and this depends on how the nomination has been created while filling the nomination form
  • in case of absence of nomination, the legal heirs have to produce additional documentation like succession certificate. Succession certificate may not be needed if the PPF balance is below 5 lakhs

The following documentation is generally needed:

  • A Certificate in regard to the Death of the Subscriber.
  • Succession Certificate / Letters of Administration with Attested Copy of Probate will of the Deceased issued by High Court (this is not needed if nomination is there)
  • Passbook of PPF A/c of the Subscriber

The following are required to be produced by legal heirs in the absence of Nomination:

  • Letter of Indemnity
  • Affidavit
  • Letter of Disclaimer on Affidavit


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What is the lock-in for PPF?

PPF has a lock-in of 15 years and can be extended in blocks of 5 years.


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What is the maximum one can invest in the PPF of family members?

Each PPF account holder can invest ₹150,000/year combined in their own PPF account and in the PPF account of any minor child that they are the guardian of. Investment in the PPF accounts of other family members directly from the self bank account falls under a grey area of the PPF Act and should be avoided.


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What is the rate of interest of PPF?

The interest rate for PPF is 7.1% today. The Ministry of Finance declares PPF rates every quarter along with other small savings schemes like SCSS, NSC, KVP, Sukanya Samriddhi Yojana as well as Post Office deposits. The interest rate is guaranteed by the Central Government.


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What is the year convention for PPF?

PPF investment follows the financial year ie. 1st Apr to 31st Mar.


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What should NRI do with PPF account?

If they became NRI after having a PPF account as a resident Indian, they can either

  • continue the account with further contributions on non-repatriable basis
  • close the account after at least five years of opening by producing relevant documents like passport, visa or tax returns. The maturity amount is deposited in the NRO bank account. This amount is not taxable in India but you should check, depending on your resident country, if you need to pay any tax on foreign income


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When does a PPF account mature?

A PPF account matures on 1st April after 15 years of opening. This rule works like this:

  • if you opened the account between 1st April and 31st December of Year 20XX, the account will mature on 1st April of 20(XX+16). E.g. an account opened on 1st December 2020 will mature on 1st April 2036
  • if you opened the account between 1st January and 31st January of Year 20XX, the account will mature on 1st April of 20(XX+15). E.g. an account opened on 1st January 2020 will mature on 1st April 2035


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When is the right time to invest in PPF?

PPF interest is calculated using the minimum balance in the period from 5th to the end of the month. Hence if you are investing once a month, you should do it before the 5th. If you are investing once a year, do it as soon as you have money.


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When should you open a PPF account?

Given the 15 year lock-in and the low minimum investment amount of ₹500/year, you should open a PPF account as soon as you start earning. This will start the 15 year clock and once your income increases you can invest more.


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Which bank to choose to open PPF account?

PPF scheme is managed by the Central Government and the choice of bank or post office, beyond convenience of operating the account and customer service, does not matter. It is simpler to open the account in the same bank where you already have an account. You can use Netbanking as well in select banks to open an account online.


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Who can open PPF account?

Only resident Indians, including minors with a guardian, can open a PPF account. Each eligible account holder can only have a single account in their name. They can also hold a second account, as guardian, in the name of their minor child. The limit of investing ₹150,000/year is shared between these two accounts. HUF and NRI cannot open new PPF account.


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Will PPF give higher return than mutual funds?

The PPF return rate is guaranteed by the Central Government while no such guarantee is available in mutual funds whose returns, especially that of equity mutual funds, fluctuate a lot. 15 year SIP returns using Sensex data from 1979 has been higher than PPF for 82% cases.

Click here to read the related article.


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This post titled Frequently asked questions on Public Provident fund (PPF): the complete guide first appeared on 12 Jun 2022 at https://arthgyaan.com


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