5 Changes in PPF Account Rules that You Must Know

Public Provident Fund (PPF) is one of the schemes under the overall ambit of small savings schemes promoted by the Govt. of India. While salaried people partially have a social security mechanism in terms of contributions towards Provident Fund and Superannuation Fund deducted from monthly salaries, PPF comes to the rescue of non-salaried people.

Salaried and non-salaried Individuals can open PPF accounts. These are required to be maintained for at least 15 years, and partial withdrawals are allowed from the account only for specific reasons.

As per the rules governing PPF accounts, one needs to open a PPF account with a minimum deposit of Rs. 500 and deposit a minimum of Rs. 500 in the subsequent years as well.

The interest rate on PPF accounts is notified by the Central Govt. every quarter, and the present rate announced by the Govt. for the period April 2020 to June 2020 is 7.10% per annum. This interest is credited to the PPF account yearly.

Further, to incentivize individuals to contribute towards PPF, several tax incentives have also been provided towards PPF contributions and interest on PPF accounts. While the contributions made in PPF accounts are eligible for tax deduction under Section 80C of the Income Tax Act, the interest on PPF accounts is exempt from tax.

The Govt. of India has notified the revised Public Provident Fund Scheme 2019 on 12^th December 2019, wherein a few changes have been made primarily related to the account operations. Here are five changes in PPF account rules that you must know:

1. Removal of Restrictions in the Number of Deposits in a year

As per the earlier rules, an individual could not make more than 12 deposits in their PPF account in a financial year. However, the revised scheme has removed any such restriction on the number of deposits that can be made in a PPF account within a year.

An individual can make contributions to the PPF account in multiples of Rs. 50. However, one can deposit a maximum of Rs. 1.50 lakh in PPF account in a year, and this a limit is inclusive of the deposits made by the individual in their account, and the account opened on behalf of the minor.

2. Additional Reasons allowed for Premature Closure of Account

Earlier, a PPF account could be closed prematurely in case of a life-threatening disease within the family of the account holder (comprising of the account holder, spouse, dependent children, and parents) or to pursue higher education by the account holder.

However, the account was not allowed to be closed within five years of the opening of the account. Also, the interest rate as applicable to the PPF account during the currency of such an account is reduced at the time of premature closure.

While the rules regarding the time limit and reduction in the interest rate for the account have not been changed, two more eligible reasons have been added for premature closure of the PPF account.

a. Earlier premature closure was allowed for pursuing higher education by the account holder only, the scope has now been broadened for the pursuance of higher education by dependent children as well. The closure on these grounds is allowed on the production of documents and fee bills confirming the admission in a recognised institute of higher education in India or abroad.

b. Further, a PPF account can also be closed earlier, but after the expiry of 5 years from account opening, if the residency status of the account holder has changed. Since only a resident can open a PPF account, as evidenced from the applicable forms confirming the residential status of the individual, the account can be prematurely closed if one becomes an NRI (Non-Resident Indian) on the production of a copy of passport and visa or Income Tax Return.

3. Continuation of PPF Account after 15 years without making deposits

Earlier, a PPF account was allowed to be extended beyond the period of 15 years in a further block of 5 years. However, once the account was extended, the same was required to be operated as a regular PPF account, thereby requiring the minimum contributions to be made.

Revised scheme rules have clarified that PPF account can be continued after 15 years with or without making deposits. However, such an option has to be made by the account holder, and further operations to the account are regulated accordingly.

if the PPF account is continued without deposits, then the account holder cannot switch to making contributions to the PPF account thereafter. Such PPF accounts with or without deposits will, continue to earn interest during the extended period as well on the outstanding balances as per the scheme rules.

4. Change in the Interest Rate on Loan from PPF Account

The PPF Scheme allows an individual to take a loan from the account between the 3rd financial year from the account opening until the end of the 6th financial year. While the interest rate applicable to such PPF accounts was 2%, the interest rate on such loans has been reduced to 1% now.

Also, since the account does not earn interest on such an outstanding loan amount, the effective interest rate on such loans is the applicable PPF account interest rate plus 1%.

5. Changes in Forms for PPF Account

The number of forms applicable to the operation of PPF accounts have been reduced and also simplified. As per revised PPF rules, the following five forms will now be applicable as below:

• Form 1 – Opening of Account form
• Form 2 – Form for application for loan/withdrawal
• From 3 – Form for application for closure of the account
• Form 4 – Application for extension of account
• Form 5 – Form for premature closure of the account

Do keep these 5 changes in PPF rules in mind while making your investments for the current financial year.