We do need to invest our savings in order to earn interest and maximize our returns. PPF, because of its flexibility, rate of return and benefit of tax deduction is one such financial product which should be part of everybody's investment portfolio.
PPF is considered one of the safest long term investments with duration of 15 years. Since, money has to be invested in PPF account for the duration of 15 years at least (Read: PPF maturity options for more details), so it is very important to know three things -
- What are the minimum and maximum deposit limits for PPF account so that PPF account doesn’t get discontinued and we get maximum returns out of our PPF account.
- When to deposit in order to maximize the return.
- What will happen if subscriber fails to deposit even the minimum deposit in any given year.
In this post I'll try to explain the above points so that you know how much to deposit in your PPF account and when to deposit in order to maximize the returns.
Deposit limit for PPF
With in a given financial year a minimum of Rs. 500 to a maximum of Rs.1.50 lakhs may be deposited in a PPF account. The subscriber should not deposit more than Rs.1.50 lakhs per annum as the excess amount will neither earn any interest nor will be eligible for rebate under Income Tax Act.
How much to Deposit
The amount can be deposited in lump sum or in convenient installments not more than 12 Installments in a year subject to total deposit of Rs.1,50,000 with in a fiscal year (Based on the current exemption limit).
It is not mandatory to make a deposit in every month of the year. The amount of deposit can be varied to suit the convenience of the account holders.
It is also not mandatory that the same amount must be deposited every year. If a person has funds he can deposit the maximum i.e. Rs 1,50,000. If in any given year person has shortage of funds then he can deposit what ever is possible, but at least Rs. 500 which is the minimum limit. This flexibility of the investment makes PPF unique.
There is some confusion over any restriction on the number of deposits done in a month. Bank of India PPF rules say two installments in a month. But I have also heard people saying they have made 4 deposits in a month. So please let me know if any body has any knowledge about any restriction on the number of monthly deposits.
I see it this way if a person has enough money to make more than 2 deposits in a month that too between the 1st and 5th of that month (Read: Why deposit should be made between 1st and 5th of any month), then person can very well club it in with in 2 deposits. If a person is making a third deposit after 5th, it would be better to make that deposit between the 1st and 5th of the next month.
When to deposit
The interest on balance in the PPF account is compounded annually and is credited at the end of the year. But the point to remember is that the interest calculation is done every month which means the interest is calculated on lowest balances in account between 5th and last day of the month. So, if one doesn't deposit on or before the 5th of a month, one doesn't earn interest for that month. (Read : How is the interest on the PPF calculated? for more details)
Deposits in Minor Account
The amounts deposited in one's own account and those of one's children and spouse can be deducted from income under section 80C but make sure that the total deposit in all those accounts doesn't cross the maximum limit of Rs. 1,50,000.
Discontinuation of PPF account
The minimum amount that has to be deposited in a PPF account with in a financial year is Rs. 500. If in any financial year subscriber fails to deposit that minimum amount, the account will be treated as discontinued.
If an account is discontinued the subscriber will not be entitled to obtain a loan or make a partial withdrawal unless the account is revived.
Please note that even if the PPF account is discontinued it will continue to earn interest.
How to revive a discontinued PPF account-
A discontinued PPF account can be revived by paying a default fee of Rs. 50 for each defaulted year, along with subscription arrears of Rs. 500 for each such year.
Points to note -
- The deposits shall be in multiple of Rs.100 subject to minimum amount of Rs.500.
- Maximum limit is Rs. 1,50,000 which is the current exemption limit, so if there is any increase in exemption limit then the maximum investment limit in the PPF account may increase too.
- Failing to deposit minimum deposit requirement of Rs. 500 in a fiscal year will result in the discontinuation of the PPF account.
- Discontinued account will still earn interest.
- No loan or partial withdrawal is permitted if the account is discontinued.
- Discontinued PPF account can be revived by paying the penalty and the subscription amount for the defaulted years.
That's all for this topic Public Provident Fund (PPF) Deposit Rules. If you have any doubt or any suggestions to make please drop a comment. Thanks!
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Hi, Is there any limit on number of deposits within one month? I have already done 2 deposits in Mar-17 and would like to make one more deposit before 31st March 2017. Please let me know if my 3rd deposit will start earning interest from April-2017 onwards.
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