Public Provident Fund
How recent PPF guidelines impacts you?
Three paragraphs on public provident fund (PPF) in a guideline issued by Ministry of Finance in July 2024 have created confusion in the investors’ mind regarding its impact on their existing PPF accounts. The confusion is even more if such PPF account is for the child. Various social media posts on this subject have amplified the chaos and fear by their incomplete or incorrect understanding of the guidelines. In this article, we have tried to summarize the impact of the guidelines in a simpler and easier way.
What does the law say?
The PPF scheme was first established in 1968 with Public Provident Scheme, 1968 and later amended in 2019 through Public Provident Scheme, 2019. As per Para 3 of this scheme, an individual may open a PPF account in his own name and on behalf of each minor or person of unsound mind of whom he is a guardian. However, it states that only one such account can be opened in the name of a minor or person of unsound mind. Further, Para 4 of the scheme states that the annual deposit limit of Rs 1.5 Lakhs applicable to an individual is sum total of the deposits made by that individual in his own PPF account and PPF account of the minor.
It needs to be noted that the latest guidelines are issued to ensure that the PPF rules, already in force, are accurately complied with and it list down the manner in which the past deviations from these rules should be treated.
Impact of the guidelines
The chart below details the impact of the guidelines on various real-life scenarios:
Individuals having one PPF account | Individuals having one PPF account shall have no impact because of these guidelines. He can deposit Rs. 1.5 Lakhs annually and will earn PPF interest as notified from time to time. |
Individuals having two PPF accounts | In case of an individual having two PPF accounts, he has to designate any one out of the two PPF accounts as a primary account. The amount lying in the second account will be transferred to the primary account subject to an annual limit of Rs. 1.5 Lakhs for both primary and second account put together. Any surplus amount in the second account shall earn 0% interest and shall be refunded. |
Individuals having more than two PPF Accounts | In case an individual has more than two PPF accounts, then for the first two PPF accounts, the treatment shall be similar to as described above. The remaining PPF accounts shall earn 0% interest and the amount in those account shall be refunded. |
PPF account of a minor linked to a guardian | A minor’s PPF account which is linked to a guardian (either of the parents or a legal guardian) shall have no impact because of these guidelines. The guardian can deposit Rs. 1.5 Lakhs annually and the account will earn PPF interest as notified from time to time. |
PPF account of a minor not linked to a guardian | A minor’s PPF account which is not linked to a guardian will earn 4% annual interest till the time the minor attains the age of 18 years. Thereafter, the account shall earn the PPF interest as notified from time-to-time. The account opening date for such accounts shall be calculated from the date the minor becomes an adult and it shall mature after 15 years from the date of becoming an adult. |
Individuals having a PPF account for himself and another PPF account for minor | In such cases, both the PPF accounts shall continue to earn PPF interest as notified from time to time and the individual can deposit Rs. 1.5 Lakhs annually (combined deposits of both PPF accounts). In case, for any year, the combined deposit is more than Rs. 1.5 Lakhs annually, any such excess deposit shall earn 4% interest. |
Individual having two PPF accounts in the name of minor | If an individual has opened two PPF account in the name of the same minor, then he has to designate any one out of two accounts as a primary account. The remaining account shall earn an annual interest of 4%. Once the minor attains the age of 18 years, the remaining account will be treated in the same way as a second PPF account. |
PPF accounts of Individual who have relocated outside of India (NRIs) | There have been instances wherein an individual becomes NRI after opening a PPF account. In such cases, he can continue to deposit Rs. 1.5 Lakhs annually and the account will earn PPF interest as notified from time to time. On maturity (i.e. 15 years), NRI shall not have an option to extend the account for additional block of 5 years and will have to close the PPF account. |
As can be seen from the above, through these guidelines, the government has tried to address non-compliances where two or more PPF accounts were open in the name of the same individual or where an individual was depositing more than the permissible annual limit of Rs. 1.5 Lakhs in two or more PPF accounts. They have also addressed the non-compliances pertaining to PPF account of minors as well as of individuals whose residency has been changed to NRI post opening the PPF account.
By: Vishal Shah, SEBI Registered Investment Advisor and founder of Bachhat
Sept 3, 2024
This article also appeared on ET Wealth website on Sept 4, 2024.
(Disclaimer: This is not a financial advice and the readers should reach out to registered investment advisors for any financial advice. Registration granted by SEBI, membership of BASL and certification from National Institute of Securities Markets (NISM) in no way guarantee performance of the intermediary or provide any assurance of returns to investors. Investment in securities market are subject to market risks. Read all the related documents carefully before investing.)