All you need to know about the new PPF rules

The government recently notified new rules of Public Provident Fund (PPF) accounts for the benefit of account holders

Bengaluru, First Published Dec 21, 2019, 3:16 PM IST | Last Updated Dec 21, 2019, 3:16 PM IST

Bengaluru: The structure of the good old Public Provident Fund (PPF) is set to undergo a few changes, with the ministry of finance notifying new rules for small savings instruments.

PPF is one of the most popular small savings schemes and it offers a guaranteed return. It is a long-term investment avenue with a maturity period of 15 years. Primarily it was introduced to channelise one's saving into the investment option such that the proceeds would enable an individual to meet one's financial needs post retirement from active work life.

For the current quarter, PPF fetches interest rate of 7.9% per annum. Interest is calculated for a calendar month on the lowest balance at the credit of an account between the close of the fifth day and the end of the month. Interest is credited to the account at the end of each year.

The new rules are explained below:

1) According to new PPF deposit rules, an account holder can make deposits of Rs 50 any number of times in a financial year, with a maximum of a combined deposit of Rs 1.5 lakh a year. Earlier, a maximum of 12 deposits were permitted in a period of 1 year.

2) The government allows premature closure of PPF account and this needs to be backed by supporting documents. Say for instance, when you wish to close the account prematurely for the purpose of treatment of some illness, the entity maintaining your PPF account (bank or post office) would require you to produce medical reports from the hospital where in the treatment is going on. And likewise, when you need to close the account in order to fund higher education, you need to submit the documents showing confirmation of admission in recognised institute in India or abroad.

It is to be noted that in case of premature closure of PPF accounts, the account holder gets 1% lower interest than the rate at which interest has been credited to the account.

3) A loan against your PPF deposits is another option to meet short-term liquidity needs. It is allowed from the third financial year of opening the account. The maximum amount of loan you can take is restricted to 25% of the balance at the end of second year immediately preceding the year in which the application is made. For example, if you had opened the account in May 2013, you would be eligible to apply for the first loan in the financial year 2015-16. The maximum loan allowed in this case would be 25% of the balance as on March 31, 2014.

In case of death of the account holder, the nominee or legal heir shall be liable to pay interest on the loan availed by the account holder but not repaid before his death. Such amount of due interest shall be adjusted at the time of final closure of the account.

The new PPF Scheme 2019 lays down that the PPF account balance shall not be subject to attachment under circumstances of any order or decree of court against an individual's debt or any other liability.

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