A Detailed Guide to Public Provident Fund (PPF)

Public Provident Fund (PPF) is a long term savings scheme which was launched in the year 1968 by the Ministry of Finance and National Savings Institute. This scheme was introduced to bring the unorganised sector employees and the ones who are self-employed on the same level as the organised sector workers. 

PPF is a small savings scheme with an objective to provide retirement savings option to self-employed and unorganised sector employees. This scheme offers a sovereign guarantee and ensures tax benefits. Read on to know how PPF schemes work. 

Below are some of the important features of PPF:

1. Tenure

PPF is a long term investment and has a minimum tenure of 15 years. This can be extended by 5 years according to your wish after maturity. 15 years is the lock-in period which means the amount can be withdrawn only after this amount of years. 

Premature withdrawals are permitted only in case of emergencies from the seventh year onwards.

2. Investment limit

Accountholders need to invest a minimum of ₹500 annually, while a maximum investment of ₹1.5 lakh is permitted every financial year. You can either invest in a lumpsum or in a maximum of 12 instalments. 

3. Interest rate

The PPF interest rates is fixed as well as paid by the government for each quarter. Every month, the interest is calculated on the basis of the lowest PPF balance of any accountholder after 5th of every month to the last day of the month.

After the end of every financial year, the interest amount is credited to the PPF account. Therefore, account holders are supposed to contribute before 5th of each month. The interest rate fixed by the government for the last quarter of 2022-23, applicable from January 01 up to March 31 2023, is 7.1%.

4. Risk free

As PPF is a government-backed scheme, it offers risk-free fixed returns and complete capital protection. As the risk involved is minimal, PPF account might work as a good diversification tool for an investor’s portfolio.

5. Loan against PPF

A PPF account holder is eligible to take a loan against their PPF balance. However, you can take this loan after completion of 1 year up to the 5th financial year from the date of opening the account.

6. Nomination

A PPF account holder can appoint a nominee for their account. The account holder can do so at the time of opening the account or at a later period.

You should meet the following PPF eligibility criteria if you wish to invest in PPF:

• You should be an Indian resident.
• You should make sure you have only one PPF account unless the other one is in the name of a minor.
• NRIs are not eligible to open a PPF account. However, an Indian citizen can continue having a PPF account if they become an NRI up to the time of maturity, but cannot renew the tenure.
• Joint PPF accounts are not allowed.
• HUFs are not eligible to open PPFs after May 13 2005. All the PPF accounts prior to that date have stopped being operational; after their maturity period of 15 years, they won’t be eligible for an extension of 5 years.

Here is a list of the documents you will require to open a PPF account:

1. PPF account opening form which is available at the nearest bank branch or post office. 
2. Two passport-size photographs.
3. In case of a minor, a birth certificate would be necessary.
4. Either a signed cheque in favour of your name or a pay-in-slip at the bank for transferring the amount to your PPF account.
5. Proof of Identity that includes any of the following:
   • PAN card
   • Voter card
   • Aadhaar card
   • Passport
   • Driving license
6. Any proof of address from the list provided below:
   • Aadhaar Card
   • Electricity Bill
   • Telephone Bill
   • Ration Card

You should carry all the self-attested documents as well as the originals while opening the account. Although the online process to open an account in different banks might include separate procedures, the basic documents and submission of application remain same.

You can open your PPF account at your nearest Post Office branch or at a bank branch as per your convenience. The account can be opened in only a few designated branches of the following banks:

• State Bank of India
• Punjab National Bank
• Dena Bank
• Bank of Baroda
• Central Bank of India
• Bank of India
• Oriental Bank of Commerce
• Union Bank of India
• Axis Bank
• IDBI Bank
• HDFC Bank
• Kotak Mahindra Bank
• ICICI Bank
• Bank of Maharashtra

If you want to open a PPF account you can do so in a participating bank or post office where you have a savings account. PPF accounts can be opened online as well as offline. 

In order to open your PPF account online, you need to enable mobile banking or internet banking services. Here are the steps you can follow:

Step 1: Log in to your account on mobile banking or internet banking platform.

Step 2: Select the ‘Open a PPF account’ option.

Step 3: In case you are opening the account for yourself, you need to select the ‘Self Account’ option.

Step 4: If you are opening the account for a minor, you need to select the ‘Minor Account’ option.

Step 5: Fill up the application form and provide all the relevant details. 

Step 6: Mention the total amount you want to deposit in the account every financial year. You can also add instructions for automatically debiting the stated amount from your savings account according to the intervals stated.

Step 7: Submit your application. After this, an OTP will be generated for confirming your identity. 

Step 8: Enter the OTP and your PPF account will be created. You will be able to see a success message displaying on your screen. Apart from this, you will also receive a confirmation mail with all the details.

Below are the steps that you can follow if you wish to open a PPF account offline:

Step 1: Visit the nearest bank branch or post office to collect the application form for PPF.

Step 2: Fill up this form with all the requisite information. 

Step 3: Submit the relevant documents along with the application form to the bank or post office representative.

Step 4: After the application is processed, you will receive a passbook for the same.

One of the prerequisites to check PPF account balance online is that your PPF account should be linked to your mobile banking/internet banking account. Here is the process that you can follow to check your PPF account balance:

Step 1: Navigate to your account on the mobile banking or internet banking platform.

Step 2: Enter the PPF account number to view the balance.

It is however important to note that every bank has a different process to check the PPF balance. In order to perform various banking transactions, you need to link your existing bank account with the PPF account.

You can also avail the facility of checking the PPF account balance offline by either visiting the nearest post office branch or bank. Here are the steps that you can follow if you want to check your PPF account balance offline:

Step 1: Visit your nearest bank or post office branch where you hold your PPF account.

Step 2: Update the PPF passbook which will then reflect your current account balance.

In addition to offering retirement savings, you get the added benefit of income tax exemption on the amount you invest in a PPF account. Below are the benefits which you can expect from your PPF account:

• Guaranteed returns

  PPF is backed by the government of India. Therefore, it is entirely risk-free and is guaranteed by the government. In addition to that, if you have debts that you are unable to repay, the returns generated from PPF cannot be attached to any court order.

• Small investment, decent returns

  PPF allows you a lot of flexibility to invest. You can open an account by investing as little as ₹100. After opening the account, you can invest as low as ₹500 or as high as ₹1,50,000 per month. 

  You also get the freedom to invest this amount either in lumpsum or in a maximum of 12 instalments. At present, you can earn as high as 7.1% interest which will be compounded annually.

• Liquidity

  When your PPF account matures after 15 years, you can make great use of the funds in your account. If you are able to maintain the account for 3 years, you get the facility to opt for a loan despite the 15 years lock-in period. In case there is an emergency, you can avail 25% of the balance as a loan. 

  After 6 years, you can prematurely start withdrawing money from your PPF account for higher education or severe medical treatment. Complete PPF withdrawal is also possible if you are no longer able to commit financially to it.

• Tax benefits 

  One of the great things about PPF tax savings which is known as EEE or exempt-exempt-exempt tax status. Invested amount of up to ₹1.5 lakhs is deductible from your taxable income. Along with that, the interest that you earn is also not taxable. Finally, the returns that you generate after the maturity period of 15 years are also tax-exempt. Therefore, it is one of the most tax-efficient investments.

• Flexible tenure

  After the 15-year maturity tenure, you can either withdraw the entire amount or extend the tenure for a block of 5 years. 

It is important to understand how to select the best PPF account as it has a maturity tenure of 15 years and you cannot start withdrawing money before a tenure of 6 years. Here are some tips as to how you can choose the best PPF account:

• If you are someone who cannot afford to spend much time by visiting the bank branch, it is better to check whether your bank allows opening a PPF account online.
• As all the banks offer the same features and benefits of PPF, it is wise you choose a bank in which you have prior experience with transactions.
• It might be good if you opt for a bank which you regularly visit to avoid visiting different banks for different services. 
• In case you open a PPF account in a bank where you have a savings account, it will be easier to transfer the funds directly from your savings account to your PPF account.
• It is important for you to find out whether the bank that you choose takes a lot of time to open your PPF account or whether they provide a simple account opening process.
• Most importantly, prefer a bank that provides assistance and technical support in relation to your PPF account in case you face any issues. 
• Never open a PPF account with an unauthorised centre. 
• Do not fall for the bait given by any bank in relation to offering higher interest rate set by government as this is never possible.

You can choose any of the banks from the aforementioned list of banks or any post office branch and open a PPF account either online or offline. 

Before opening a PPF account, you might want to keep the following points in mind:

• To open the account, you will need to deposit a minimum of ₹500.
• However, you can invest only a maximum of ₹1.5 lakh every financial year.
• After opening the PPF account, you need to deposit at least once in an entire financial year.
• You should deposit a minimum of ₹500 and a maximum of ₹1.5 lakh every financial year.
•  In case you fail to make a contribution of ₹500 in a financial year, your account will become inactive. However, you can reactivate it by paying a penalty of ₹50 for each year of inactivity along with ₹500 minimum contribution necessary for every year the account was inactive. 
• In case the deposit exceeds ₹1.5 lakh in a year, the excess amount is refunded back to the accountholder without any interest.
• When you are depositing the money, remember to do so within 5th of every month.
• Although there is an EEE benefit applicable as per section 80C of Income Tax Act, as per the new regulations, PPF withdrawals will now be subject to Tax Deducted at Source. In case withdrawal exceeds ₹20 lakh, a TDS of 2% to 5% will be applicable. However, this will be applicable only if the account holder has not filed Income Tax Returns in the previous 3 years period.
• Though the maturity period of PPF account is 15 years, this tenure is not calculated from the date of account opening. The maturity period is calculated from the end of the financial year you made your first investment. Therefore, you need to make 16 annual contributions instead of 15 contributions.
• You can make contributions to your PPF account through cash, cheque, online transfer or any other digital mode of payment.

The combination of inflation-beating returns and tax-saving advantages has been keeping the popularity of Public Provident Fund in India significant. With the bank interest rates on the way to continuous decline and people seeking other investment initiatives, PPF continues to be one of the most well-known tax-saving investment schemes in India.