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.
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 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.
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.