Personal Finance

Showing posts with label PPF. Show all posts

Tuesday, 2 January 2018

PPF or Life Insurance

Should I start investing in PPF or take a life insurance policy is a question asked quite frequently. Though these two are completely different products and this question PPF or LIC should not be even asked as comparing them is like comparing chalk and cheese.

The thing is; for many individuals investing means somehow provide proofs for tax deduction under 80C. Since premium paid towards life insurance and contribution in PPF both can be claimed under 80C thus the question LIC or PPF.

Similarities in LIC and PPF

There are few similarities in both LIC and PPF -

Multi-year contribution – In both of these instruments you need to contribute for long periods. In case of PPF at least 15 years where as in case of life insurance you need to pay premium for 15, 20 or even 30 years based on the policy terms.
Regular contribution – In both of these instruments regular contribution is needed. At least once in year you will have to invest some amount in PPF same in case of LIC you do need to pay the annual premium.
Tax relief – Both of these instruments provide tax relief as amount invested with in a Fiscal year or premium paid for life insurance can be submitted as proof for tax deduction.

Changing the mindset

Though there are few similarities but that doesn’t make PPF and LIC similar. These two are vry different products with their own importance but it should not be LIC or PPF but LIC and PPF. Let us see why?

For any financial planning and long term stability there are two things we look for -

Protection
Saving

Protection

In financial terms protection means accounting for unfortunate circumstances like death or medical emergency and that’s where insurance in form of life insurance or health insurance helps. That should be your idea for buying life insurance; to safe guard the near ones from the financial impact of the death of the insured.

Primary purpose of life insurance should not be looking for survival benefits upon the completion of the policy tenure. That is why it is even better to buy term insurance than life insurance but that is another topic.

Saving

In financial planning you should think of protection first and then for saving for goals like buying a house, kid’s education, retirement planning. When you have to save for these goals that’s where you will have to look for saving instruments like PPF.

So, you see it is more of mindset change for many of us and start accepting the fact that not every instrument out there is for saving. We need to change our thought process too that financial planning is not only somehow providing proofs for 80C at year end.

You need to think of financial planning as two distinct parts -

Providing protection – Buy life and health insurance for these needs.
Saving for goals – Look for investments like PPF, SSY, SIPs in mutual funds for specific saving goals.

What happens in case of death

It’s the accounting for unfortunate circumstances that we have to put protection first and this is the case when life insurance scores over any small saving scheme like PPF.

If subscriber dies, in case of PPF nominee will get whatever is invested till death + accrued interest for that period.

In case of life insurance nominee will get sum assured irrespective of premium paid.

Let’s see it with an example -

Let’s assume a person aged 28 starts both LIC and PPF in the same year, he buys a LIC policy with 1500000 sum assured for 15 years term. In that case, premium he needs to pay will be around Rs. 1.2 Lakhs per year.

Let’s assume he invests the same amount in PPF every year i.e Rs. 1.2 Lakhs.

Unfortunately the person dies after 3 years then in case of PPF, nominee will get whatever is invested in these 3 years + accrued interest which comes to around Rs. 4,21,000 if we take 8% as interest.

But in case of LIC nominee will get sum assured which is Rs. 1500000 + Bonus. Bonus announced by LIC is in the range 36 – 40 per 1000. If we take it as 40 in this case then bonus for 3 years will be 180000. So nominee will get total 1500000 + 180000 = 1680000 (Rs. 16.8 Lakhs).

Comparison points between LIC and PPF

If you are convinced and agree with me that it is not LIC or PPF but LIC and PPF then you don’t even need to read further. If you are still not convinced and looking for comparison between LIC and PPF then let’s see some of the comparison points too -

Yield – If you are buying LIC policy with investment in mind then it is a sloppy investment. Return on maturity benefit comes in the range 4% – 5% only. Where as in case of PPF, even though the rates are down (7.6% in Jan, 2018 - Mar, 2018 quarter), you will get more than LIC policy.
Ease of investment – In ease of investment both are similar. In case of insurance policy there are options to pay premium monthly, quarterly, half yearly or annually. In case of PPF also you can invest in lump sum or invest monthly.
In case of PPF minimum contribution is Rs. 500 which means you can pay the minimum amount of 500 in a year to keep your subscription alive. That may be helpful if you have some financial problem in any year.

In case of LIC you will have to pay the fixed premium otherwise your policy will lapse.
Stopping investment – In case of PPF you can take loan or do a partial withdrawal as per the rules of PPF. Pre-mature closure is also possible after 5 years but only for certain conditions like terminal illness, higher education.
In case of LIC policy that can be surrendered any time but you will get surrender value as per rules only after paying premium for 3 years.
Tax benefits – LIC policy premium amount can be claimed as deduction under 80C (Current limit of 80C is Rs, 1.50 Lakhs inclusinve of all savings). Amount invested in PPF can also be claimed as deduction under 80C. So both provide tax benefits that way.
Returns from PPF are tax free. If you close your PPF account after completing 15 years then you will not have to pay any tax on the returns.

Maturity amount on your LIC policy is also tax free except for this condition - If the premium payable in any year exceeds 10% of the actual sum assured, then the policy proceeds would be taxable in the hands of the insured.

That's all for this topic PPF or Life Insurance. If you have any doubt or any suggestions to make please drop a comment. Thanks!

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Thursday, 2 April 2015

Public Provident Fund (PPF) Account Opening Eligibility

A Public Provident Fund (PPF) Account can be opened by any resident Indian Individuals (Salaried, Business men, Self employed professional or any other category).

If a salaried class person has a General provident Fund account, or an Employees Provident Fund account, he can still have a PPF account there is no restriction.

PPF account by Grand Father/Mother

The grand father/mother cannot open a PPF account on behalf of their minor grand son/daughter except in the case grand father/mother are acting as the guardian of the minor.

NRIs opening PPF account

Non-resident Indians (NRIs) are not eligible to open a new PPF account.

Earlier you could keep an existing PPF account even if you become an NRI but that rule has also been changed. As per the new rule issued in 2017 as soon as your residential status changes your PPF account will be deemed closed.

From the day your residential status changes till the day you withdraw money from your closed PPF account, your closed PPF account will earn the interest rate payable on a post office savings account (Current rate is 4%), which is almost half of the interest rate you get on a PPF account.

HUF opening PPF account

Opening of PPF accounts in the name of Hindu Undivided Family is also not permitted. Since May 13, 2005, HUF also can not open a account under the PPF scheme. If the PPF accounts was opened, in the name of HUF, prior to May 13, 2005 subscription may continue to that account till maturity. That account can not be extended any further i.e. it has to be closed after 15 years.

Number of PPF accounts

A person can have only one PPF account in his name, if a person opens 2 PPF accounts anyhow and at some point it is detected that a person has 2 accounts (can easily be done by PAN) one of them would be closed and only the principal amount would be returned not the interest. Thus it would serve no purpose to have 2 PPF accounts.

PPF account for a minor

One exception to the stated one account per person rule is having an account for the minor where a person who is already having a PPF account can open another account on behalf of a minor but in that case combined limit for both the account would be 1.5 lakhs (Current limit for the PPF) anything deposited over and above that amount won't get any interest.

In case of family of four - couple and their 2 kids, Kid-1 and Kid-2 there are following scenarios for the number of PPF accounts an individual can have.

Father can open PPF account for self, kid-1 and kid-2.
Mother can open PPF account for self, kid-1 and kid-2.
Father can open PPF account for self and one kid (kid-1 or kid-2).
Mother can open PPF account for self and one kid (kid-1 or kid-2).

Please note that the combined investment in any of the above scenarios should not exceed Rs. 1,50,000.

Points to note -

Joint PPF accounts are not permitted.
An individual can't have more than one account on his/her name.
No age is prescribed for opening a PPF account.
Parents and Guardians can open PPF account for minors.
Opening of PPF accounts in the name of Hindu Undivided Family is not permitted.
NRIs are not eligible to open a PPF account. Any existing account will be deemed closed on the date of residential status change.

That's all for this topic Public Provident Fund (PPF) Account Opening Eligibility. If you have any doubt or any suggestions to make please drop a comment. Thanks!

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Public Provident Fund (PPF) Tax Exemption Benefits

What makes PPF the choice of investment for everybody is that -

The amount invested in PPF, with in the financial year, can be claimed as deduction under 80C.
The interest earned is tax free.
Backed by GOI making it one of the safest saving instrument available.

So let's see what are the tax exemption benefits of PPF making it such an attractive investment.

Tax exemption benefits of PPF

Annual contributions made to the PPF account are exempted from tax under Section 80C of income tax. Currently Rs. 1,50,000 (FY 2015-16) is the amount that can be claimed under 80C, but that doesn't mean all of that Rs. 1,50,000 has to be invested in PPF compulsorily. Rs. 1,50,000 is the total amount that can be claimed for deduction under 80C.

As Example - Let's assume a person is contributing Rs. 40,000 to his EPF (Employee Provident Fund) account and also has an insurance policy for which annual premium is Rs. 20,000. Since EPF contribution and insurance premium can also be claimed as deduction under 80C, that leaves another Rs. 90,000 to be invested in case he wants to claim full exemption. That amount (Rs. 90,000) can be invested in PPF. On the other hand if a person has more money to invest then he can put Rs. 1,50,000 in PPF but based on the above scenario the exemption can be claimed only on Rs. 90,000.

Tax benefits for minor's PPF account

In case a person has two accounts one for himself and one for his minor kid then the amount that is invested in both of the accounts with in the financial year can be claimed for exemption but the upper limit of exemption remains Rs. 1,50,000. Same thing is applicable if person has 3 accounts one for himself and two for minor kids.

PPF provides EEE (Exempt-Exempt-Exempt) benefits

Before going into why PPF is termed as EEE, first lets have a little introduction on what exactly is EEE.

There are 3 ways Govt. taxes the monies invested by public at various stages of investment.
When the money is invested it goes through three stages, which are -

Contribution to an investment scheme.
Accumulation of interest.
Withdrawal stage, when the lump sum amount (sum of money invested and accrued interest) is withdrawn.

How does EEE relate to these stages?

EEE stands for Exempt, Exempt, Exempt which means -

First exempt means that the amount invested will be eligible for deduction under some section (As exp 80C) subject to the total exemption limit. The invested amount will be deducted from the total taxable income of the individual.
Second Exempt means the accrued interest will not be added to the total income and will not be taxed. Thus in case of second exempt interest earned is not taxed.
Third exempt means the income from the investment, at the time it is withdrawn, would be tax free.

With this information about EEE we can easily see why PPF is termed as EEE?

PPF is termed as EEE (i.e. Exempt, Exempt, Exempt) because

Contribution to the PPF account is exempted under 80C.
Interest earned is tax exempted, there is no TDS as in the case of FD(at the rate of 10%) if interest earned in the fiscal year is more than Rs. 10,000.
Withdrawal from the PPF account is also tax exempted.

Effective rate of return on PPF may be higher

Though the rate of interest we get on PPF is 8.7% but as we already know PPF comes under Exempt, Exempt and Exempt investment category so the effective rate of return on PPF can be much higher depending on the tax slab a person comes under.
Current tax slabs are 10%, 20% and 30%. Along with the education cess, which is 3% of the total of Income Tax and Surcharge, the tax rates come to 10.3%, 20.6% and 30.9%. Noting the point that the person doesn't need to pay any tax on the interest earned on PPF the effective rate of return can go as high as 12.59% if the person happens to fall under 30.9% tax slab.

To show it with the help of an example let us assume that person A comes under 30.9% tax slab as his taxable income is more than Rs. 10,00,000. If he has invested Rs. 1,00,000 in PPF then he earns Rs.8700 at the rate of 8.7%. Now if that return is not exempted but taxed then he has to pay 30.9% tax on this interest income of 8700. In that scenario, when he has to pay tax at 30.9% on interest income, he will have to earn an interest income of 12590 to have a post-tax return of Rs.8700.

12590 * 30.9/100 = 3890.31

12590 - 3890.31 = 8699.69

So with this logic the effective rate of return, for a person who comes under the 30.9% slab, comes to 12.59%.

Effective rate of return, for a person who comes under the 20.6% slab, comes to 10.96%.

Effective rate of return, for a person who comes under the 10.2% slab, comes to 9.69%.

Same thing can also be understood in a different way, if one hadn't shown the investment of Rs. 1 Lakh then one would have paid taxes at 30.9% (assuming the person falls in 30.9% tax bracket) on that Rs. 1 Lakh. So in a way one is investing only Rs. 69,100 to get an interest of Rs. 8,700.

Let's do the math again -

Amount of tax payable if that 1 Lakh was not invested

1,00,000 * 30.9/100 = 30,900

Thus actual investment is

1,00,000 - 30900 = 69,100

To get return of Rs. 8,700 on the invested amount of Rs. 69,100 the rate of return should be 12.59%.

69,100 x 12.59/100 = 8699.69

By this calculation again the effective rate of return for a person who comes under the 20.6 % slab is 10.96% and for a person who comes under the 10.2% slab it is 9.69%.

Thus PPF, apart from being a safe investment avenue and having almost zero volatility can provide up-to 12.59% effective rate of return for tax payers. PPF being EEE category investment brings a huge benefit of not to pay any taxes on the invested amount at any of the three stages.

Points to note -

Annual contributions to the PPF account are exempted from tax upto the maximum limit of Rs. 1,50,000.
Minimum amount that has to be deposited in the PPF account in the financial year is 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.
PPF is EEE investment which means PPF is exempted from tax across all three stages.
Effective rate of return on PPF may be much higher because of it being EEE investment.
Investment schemes may be categorized under EEE, ETE and EET.

That's all for this topic Public Provident Fund (PPF) Tax Exemption Benefits. If you have any doubt or any suggestions to make please drop a comment. Thanks!

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Public Provident Fund (PPF) Interest Rate/Interest Rate Calculation

The interest earned on PPF is not fixed but benchmarked to Government securities. The government declares the interest rate payable on PPF every financial year. Generally government declares the PPF interest rate, for the next financial year, in the last week of March.

PPF offers 25 basis points higher than the yield of 10-year government bonds. Thus the rate of interest earned on PPF may come down if Govt. bond yield comes down and may go up in case the yield goes up.

For fiscal year 2015-16 government has announced interest rate of 8.70 per cent. which is same as the last fiscal year.

Update: Earlier the interest rates for the small saving schemes like PPF, SSY, NSC used to be declared annually once. From FY 2016 - 2017 the rate of interest will be reviewed every three months so interest rate on small saving schemes will be fixed on quarterly basis and may change every quarter.

Interest Rates for PPF

April 1, 2016 - June 30, 2016 : 8.10%
July 1, 2016 - September 30, 2016 : 8.10% 
October 1, 2016 - December 31, 2016 : 8.00% 
January 1, 2017 - March 31, 2017 : 8.00%
April 1, 2017 - June 30, 2017 : 7.90%
July 1, 2017 - September 30, 2017 : 7.80%
October 1, 2017 - December 31, 2017 : 7.80% 
January 1, 2018 - March 31, 2018 : 7.60%

One of the biggest point going in the favour of PPF is that the interest earned on the scheme is completely tax free.

PPF interest rate calculation

It is very important to know how the interest on the PPF is calculated so that the rate of return on that investment can be maximized by investing amount at the proper time.

The interest on balance in your 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 you don't deposit on or before the 5th of a month, you don't earn interest for that month.

To make it a little technical; in case of monthly interest calculation, interest bearing balance method is used. Formula for the same is

Interest = Total Amount x 1/12 x Rate/100

Where total amount is the amount in the PPF account at any given month end.

As Example -

If total amount in the PPF account at the end of any given month is Rs. 1,00,000 then interest for that month would be (Considering the interest as 8.7%).

Interest = 100000 x (1/12 x 8.7/100)
         = 100000 x 0.00725
         = 725

Going by that method if we take three scenarios -

Rs. 60,000 deposited between Apr 1st and Apr 05.
Rs. 5,000 deposited every month between the 1st and 5th of that particular month.
Rs. 5,000 deposited every month after the 5th of that particular month.

Considering the interest as 8.7% the interest earned at the year end for these 3 scenarios would be.

Rs. 5,220 when Rs. 60,000 deposited between Apr 1st and Apr 05.
Around Rs. 2850 when Rs. 5,000 deposited every month between the 1st and 5th of that particular month.
Around Rs. 2400 when Rs. 5,000 deposited every month after the 5th of that particular month.

It's easy to see that lump sum investment at the start of the year (between Apr 1st and Apr 5th) will fetch the highest return.

Points to note -

Interest rate for PPF is not fixed and subject to change every quarter from FY 2016 - 2017.
Minimum deposit of Rs. 500 has to be done in a fiscal year otherwise PPF account will be deactivated.
Ideal scenario would be to deposit 1,50,000 between Apr 1st and Apr 5th in order to fetch maximum interest. A nice article for the best time to investment can be seen here - http://www.ppfaccount.in/ppf-investment-period.html
Make sure to deposit between 1st and 5th of the month in order to get interest for that particular month.
PPF is EEE investment which means PPF is exempted from tax across all three stages of investment.

That's all for this topic Public Provident Fund (PPF) Interest Rate/Interest Rate Calculation. If you have any doubt or any suggestions to make please drop a comment. Thanks!

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Public Provident Fund (PPF) Duration And Maturity Options

Public Provident fund (PPF) is one of the most favoured fixed income investment option. PPF is a long term investment option which comes with a lock-in period of 15 years and it can't be closed pre-maturely. However, during the tenure of the account, one can take loans or withdraw amounts subject to certain conditions.

Refer PPF partial withdrawal rules to know about PPF partial withdrawal rules.
Refer Procedure to take loan against PPF account to know how to take loan against PPF account.

In this post we'll talk about PPF duration and PPF maturity options.

PPF investment duration

As already mentioned original duration of the PPF account is 15 years. But note that the contribution has to be made for 16 years in all. The 15 year period is calculated from the financial year following the date on which the account is opened.

As Example -

If PPF account is opened on Apr 1st, 2014, the actual counting to maturity begins from the end of the year, i.e. 31st March 2015. So the account will mature on 31st March, 2030. To take it other way effectively the PPF account matures on the first financial day of the 17th year.

PPF maturity options

After the original duration of 15 years it is not mandatory that one has to close the account. Infact subscriber has an option to extend his PPF account for a block of 5 yrs. That extension can be done "N" no. of times, which means subscriber can keep extending his PPF account for a block of 5 years as many times he wants. So with that option of extending the PPF account, actually there are three options for subscriber once the PPF account matures.

Explaining the PPF maturity options

Complete withdrawal - PPF subscriber can opt to withdraw the whole amount after the completion of 15 years.

Extend the PPF account with no contribution - If PPF subscriber wants to keep earning interest on the accumulated amount over the 15 years period but doesn't want to invest any money in his PPF account, subscriber can opt for this option. Further points to note with in this option are -

This is the default option meaning if subscriber doesn't take any action with in one year of his PPF account maturity this option activates automatically.
Once PPF account is activated with this option of "Extension with no contribution" then the subscriber cannot put any money in the account which means no switch over to with-contributions extension is possible after that.
Any amount can be withdrawn from the PPF account if the option of extension with no contribution is chosen. Only restriction is only one withdrawal is permitted in a financial year. Rest of the amount keeps earning interest.

Extend the PPF account with contribution - With this option subscriber can put money in his PPF account after extension. Further points to note with in this option are -

If subscriber wants to choose this option then he needs to submit Form H in the bank where he is having a PPF account within one year from the date of maturity (before the completion of 16 yrs in PPF).
With this option subscriber can only withdraw maximum 60% of his PPF amount (amount which was there in the PPF account at the beginning of the extended period) within the entire 5 yrs block. Every year only a single withdrawal is permitted.

Points to note -

Original duration of the PPF account is 15 years.
PPF account can be extended in a block of five years once it matures.
Complete withdrawal of Public Provident Fund amount or pre-mature closure of a PPF Account is not permissible except in case of death.
Even a discontinued account can't be closed before maturity.
In the unforunate event of subscriber's death, nominee/legal heir of PPF Account holder can not continue the account but account has to be closed.

That's all for this topic Public Provident Fund (PPF) Duration And Maturity Options. If you have any doubt or any suggestions to make please drop a comment. Thanks!

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Monday, 30 March 2015

Procedure to Take Loan Against Public Provident Fund (PPF) Account

It is possible to take loan against the PPF account subject to certain rules and certain limitation on the amount of loan.

Rules for taking loan against PPF account

A subscriber can avail a loan on his / her PPF deposit any time after the completion of one year from the end of the financial year in which initial subscription was made but before the expiry of five years from the end of the financial year in which the initial subscription was made.

For example -

A subscriber has opened an account in January 2010 that means PPF account is opened in the financial year 2009-10. End of the financial year would be 31st March, 2010. Completion of one year from the end of the financial year means 31st March, 2011. So subscriber will be eligible to take loan from April 1, 2011.
Expiry of five years from the end of the financial year in which the initial subscription was made means five years from 31st March, 2010. That will come to 31st March, 2015. Which means subscriber will be eligible for a loan from April 1st, 2011 to 31st March, 2015.

Why this rule of 5 years?

If some readers are wondering why till 5 years why not beyond that? Answer is, after five years subscriber is eligible for partial withdrawal so no need to take loan.

Read: What are the PPF partial withdrawal rules?

Limit on Loan Amount

There is a limit on the amount that can be taken as loan from the PPF account which is as follows -
The loan amount will be limited to 25% of the balance outstanding to the subscriber's credit at the end of the second year immediately preceding the financial year in which the loan is requested.

As Example-

A subscriber requesting a loan anytime in FY 2011 - 2012 will be eligible for 25% of the amount that stood to his credit (Principal + Interest) as on March 31, 2010.

Interest rate charged on the loan

Rate charged on loan is 2% above the rate of return on PPF. Since the current rate of interest on PPF is 8.7% (Please check the current rate of interest as it is announced every quarter) so the rate of interest charged on loan would be 10.7%.

Required document for loan

Form D.
Pass Book.

Condition for second loan

You can apply for a second loan from PPF too subject to certain rules, which are as follows -

A subscriber shall not be entitled to get a fresh loan so long as earlier loan has not been repaid in full together with interest thereon.
Duration for the second loan should also fall in the same period - After the completion of one financial year and before the expiry of five financial years.

Loan against Minor's PPF account

Loan can be taken from the Minor's account. In that case the following section in the loan form (Form D) has to be filled. "Certified that the amount sought to be withdrawn is required for the use of _____________________________________________ who is alive and is still a Minor"

Repayment of loan

The loan is repayable in 36 months. First the principal amount and then the interest amount as per the following rules -

Rules for repayment of principal

The principal amount of the loan shall be repaid by the subscriber before the expiry of thirty six months from the first day of the month following the month in which the loan is sanctioned.
As example - If loan was taken on any day in May then the period of 36 months will be calculated from the month of June.
The repayment may be made either in one lump sum or in two or more monthly installments within the prescribed period of thirty six months.
The repayment of principal will be credited to the subscriber’s account.

Rules for repayment of interest

Once the principal of the loan is fully repaid then only you can pay the interest.
The interest will be charged for the period commencing from the first day of the month following the month in which the loan is drawn up to the last day of the month in which the last installment of the loan is repaid.
Interest amount should be repaid in not more than two monthly installments.
Unlike the principal amount that will be credited to subscriber's account interest paid on the loan is accrued to the government.

If the loan is not paid at all or is repaid only in part within the prescribed period of thirty six months, interest on the amount of loan outstanding shall be charged at six percent per annum from the first day of the month following the month in which the loan was obtained to the last day of the month in which the loan is finally repaid. Total duration given for paying both principal and interest is thirty-six months.

Reference Download

SBI form D

Points to note -

Loan from PPF account is allowed after the completion of one financial year and before the expiry of five financial years.
Loan facility ceases to exist as soon as the PPF account is eligible for partial withdrawals.
Loan can be taken from minor's PPF account too.
Loan (principal + interest) has to be repaid with in 36 months.
Interest rate charged is 2% above the rate of return on PPF.

That's all for this topic Procedure to Take Loan Against Public Provident Fund (PPF) Account. If you have any doubt or any suggestions to make please drop a comment. Thanks!

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Sunday, 22 March 2015

Public Provident Fund (PPF) Partial Withdrawal Rules

Though PPF is supposed to be a long term investment vehicle where the entire amount in the PPF account could be withdrawn only on maturity (i.e. After completion of 15 years. Read: What is the duration of PPF account?). However, in case of financial emergency subscriber may opt for partial withdrawals from his account subject to certain rules.

Eligibility for PPF partial withdrawal

When subscriber is eligible to withdraw can be explained in two ways, though they both mean the same thing.

Anytime after the expiry of five years from the end of the financial year in which the initial subscription is made, one withdrawal, once a year, is allowed.
As Example An account opened in January 2010 will be eligible for partial withdrawal from April, 2015. To explain it further, as I said above - from the end of the financial year in which the initial subscription is made. If the account is opened in Jan, 2010 so the end of the financial year would be 31st Mar, 2010. Expiry of five years from the end of the financial year can be counted as -
- Apr, 2010 – Mar, 2011.
- Apr, 2011 – Mar, 2012.
- Apr, 2012 – Mar, 2013.
- Apr, 2013 – Mar, 2014.
- Apr, 2014 – Mar, 2015.
Thus partial withdrawal will be allowed from April, 2015.
The second way to say the same thing is one withdrawal, once a year, is allowed from the beginning of 7th year. If we take the same example where account is opened in January, 2010 the subscriber will be eligible for partial withdrawal from April, 2015. Since the account is opened in Jan, 2010 which means financial year 2009-2010. Now, if we count till the beginning of the seventh year that count will go like -
- Apr, 2009 – Mar, 2010.
- Apr, 2010 – Mar, 2011.
- Apr, 2011 – Mar, 2012.
- Apr, 2012 – Mar, 2013.
- Apr, 2013 – Mar, 2014.
- Apr, 2014 – Mar, 2015.
So the beginning of the 7th year in this case would be Apr, 2015.

Amount that can be withdrawn

The amount that can be withdrawn is subject to the following rule -

Subscriber can withdraw an amount not exceeding the lower of:

50% of the balance at the end of the 4th year immediately preceding the year of withdrawal.
50% of the balance at the end of the year immediately preceding the year of withdrawal.

Lets's see it with an example -

For a partial withdrawal requested in April 2015, the amount of withdrawal will be limited to 50% of the lower of the balances standing to subscriber's credit as on -

March 31, 2012 (4th immediately preceding year from FY April, 2015 - March, 2016).
March 31, 2015 (Immediately preceding year from FY April, 2015 - March, 2016).

Form required for PPF Withdrawal

If you want to apply for partial withdrawals you can submit request using Form C through the bank where you maintain your PPF account.

Points to note -

PPF maturity duration is 15 years.
Pre-mature closure of a PPF account is permissible only in case of death.
Partial withdrawal is available from the starting of the 7th financial year after the initial subscription is made.
One withdrawal once a year is allowed.

That's all for this topic Public Provident Fund (PPF) Partial Withdrawal Rules. If you have any doubt or any suggestions to make please drop a comment. Thanks!

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Thursday, 19 March 2015

Public Provident Fund (PPF) Deposit Rules

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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Saturday, 7 March 2015

Where Can I Open a Public Provident Fund (PPF) Account

The PPF or Public Provident Fund is one of the most popular long-term investment options offered by the Central Government for Indian residents. PPF account can be opened in almost any PSU bank, though not all branches provide the facility so please check beforehand.

Few private banks are also authorized to open a PPF account and of course PPF account can be opened in any post office.

List of PSU banks offering PPF account

Bank Name	PPF Form download URL
Allahabad Bank	https://www.allahabadbank.in/pdf/PPF%20Account%20Opening%20FORM%20A.pdf
Andhra Bank	http://andhrabank.in/Download/Forms/PPF_ACOPEN.pdf
Bank of Baroda	http://www.bankofbaroda.co.in/forms.asp
Bank of India	http://www.bankofindia.co.in/UserFiles/File/PPF_Form_A_ Account_Opening_Form.pdf
Bank of Maharashtra	http://www.bankofmaharashtra.in/downloads.asp
Canara Bank	http://www.canarabank.com/Upload/English/Content/FORM-A_%20%28PPF%20OPENING%29%281%29.pdf
Central Bank of India	https://www.centralbankofindia.co.in/Site/downloadforms _des.aspx?downloadforms_id=1
Corporation Bank	http://www.corpbank.com/node/58945
Dena Bank	http://www.denabank.com/viewsection.jsp?lang=0&id=0,9,513
IDBI Bank	http://www.idbi.com/pdf/corporate-apply-now/Govt-Business/GB_PPF_FORM_A.pdf
Indian Overseas Bank	http://www.iob.in/Public_Provident_Scheme.aspx
Punjab National Bank	https://www.pnbindia.in/new/Upload/En/ PPF_Application_Form.pdf
State Bank of India	https://retail.onlinesbi.com/sbi/downloads/PPF/FORM-A_%20%28PPF%20OPENING%29.pdf
State Bank of Bikaner & Jaipur	https://www.sbbjbank.com/We-offer/Government-Business1.htm
State Bank of Mysore	http://www.statebankofmysore.co.in/deposits/242.html
State Bank of Travancore	http://www.statebankoftravancore.com/portal/forms1
Syndicate Bank	http://www.syndicatebank.in/scripts/ otherproductsandservices.aspx
UCO Bank	https://www.ucobank.com/other-services/ppf-schemes.aspx
Union Bank of India	http://www.unionbankofindia.co.in/ personal_govt_ppfund.aspx
United Bank of India	http://oldwebsite.unitedbankofindia.com/english/PPF.aspx
Vijaya Bank	http://www.vijayabank.com/Merchant-Banking/Public-Provident-Fund

Apart from PSU banks two private banks also provide the facility to open a PPF account with them.

List of private banks offering PPF account

Bank Name	PPF Form download URL
ICICI Bank	http://www.icicibank.com/Personal-Banking/investments/ppf/ppf-forms.page
Axis Bank	http://www.axisbank.com/download/Form-A-AOF.pdf
HDFC Bank	https://www.hdfcbank.com/personal/products/investments/public-provident-fund

PPF in post office

PPF account can be opened in a Post office which is double handed and above.

Indian post office PPF account opening form

http://www.indiapost.gov.in/pdfforms/ppfactopening.pdf

Documents required for opening a PPF account

Account opening form (Form A).
ID Proof (Like PAN card, Driving license, Voter ID, Passport).
Address Proof (Like Telephone bill, Electricity bill, Ration card).

Please check with the bank/post office for the required documents while opening an account.

Nomination for PPF account

The PPF Scheme facilitates nominations of one or more persons to receive the amount standing to the subscriber's credit in case of death. However no nomination(s) is possible in case of minor account.

Points to note -

PPF maturity duration is 15 years.
Pre-mature closure of a PPF account is permissible only in case of death.
Nomination facility is available under PPF.
PPF account can be opened with a deposit of Rs. 100 though in a financial year minimum Rs. 500 has to be deposited.

That's all for this topic Where Can I Open a Public Provident Fund (PPF) Account. If you have any doubt or any suggestions to make please drop a comment. Thanks!

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Know About Public Provident Fund (PPF)

The Public Provident Fund is savings-cum-tax-saving instrument in India, introduced by the National Savings Institute of the Ministry of Finance in 1968. PPF offers an investment avenue which provides decent risk free returns coupled with income tax benefits under 80C of Income Tax Act.

A person, who is already a subscriber or about to open a PPF account, may have certain queries about the PPF account. I have tried to collate information about different scenarios and put them in a simple question answer format. Hope I'll be able to help people with their queries.

So lets view different scenarios -