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PPF New Rules: Check How it will Benefit You

Gaurja Newatia

Created on 24 Dec 2019

Wraps up in 4 Min

Read by 4.8k people

Updated on 23 Nov 2020

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The Modi Government recently took down the earlier Public Provident Fund (PPF) Scheme (1968) and launched new PPF rules in 2019, replacing all earlier PPF rules with immediate effect. What are these new rules governing the Public Provident Fund? Read on and find more below.

Let us first understand what exactly is a PPF Account before we understand PPF new rules.

What is a PPF Account?

The concept of Public Provident Fund (PPF) was introduced in India in the year 1968 with the objective of creating a corpus of savings in the form of investment, coupled with a return on it. It appears to be an attractive option since the interest earned and returns on it are not taxable under the Income Tax Act. It can also be labeled as a savings cum tax savings account since it ensures savings in addition to providing tax benefits.

The maturity period for a PPF Account is 15 years and the government announces interest rates for each quarter. For the current quarter, the interest rate is 7.9% per annum.

PPF tax benefit: What are the tax benefits in PPF new rules?

PPF is one of the most popular investment vehicles and it falls under the Exempt-Exempt-Exempt (EEE) category. What does this mean? This means that all deposits made in the PPF are deductible under Section 80C of the Income Tax Act, therefore, providing tax benefits. Furthermore, the accumulated amount and interest are also exempted from tax at the time of withdrawal.

One thing which is essential to know here is the fact that a PPF account cannot be closed before maturity. However, in case of the account holder's demise, a nominee can file for the closure of the account. The method of interest calculation for every month is as follows: calculated 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.

Can PPF Account be transferred from one bank to another?

Yes, both banks and post office PPF account holders can transfer their accounts from one bank to another or from one post office branch to another or another bank branch.

The process is quite simple. You need to visit your existing bank or post office branch and submit an application to change the branch. At the new branch, you will be required to submit a fresh account opening form, change of nomination form, if any and original passbook. The account holder might be asked to undergo the KYC process again, so documents such as Aadhar Card, Pan Card need to be carried to the bank. The process might take up to a month.

Let us now simplify the PPF new rules and draw a comparison between new and existing rules.

Particulars	The PPF Rules, 1968	The PPF Rules, 2019
Deposit Frequency	Only a maximum of 12 deposits was permitted in a period of 1 year	An account holder can make any number of deposits with a maximum combined deposit of 1.5 lakhs in multiples of 50.
Premature Closure	The government allows early closure of PPF Account only after five years of account opening. As per the existing rules, premature closure was allowed under the following circumstances: When the account holder needs an amount for treatment of life-threatening disease either for him or his spouse or dependent children or parents, which requires the production of supporting documents and medical reports confirming such disease from treating medical authority. When the account holder needs an amount for his higher education or his dependent children which requires the production of documents and fee bills in confirmation of admission in a recognized institute of higher education in India or abroad.	In addition to the existing rules, a third clause is added concerning mature closure i.e., On a change in residency status of the account holder, which requires the production of a copy of passport and visa or income tax return.
Loans on PPF Account	Under these rules, a PPF Account holder to avail loans on his account at the rate of 2% more than the prevailing rate of interest of PPF. For instance, if the PPF serves 7.9%, the interest on the loan would be 9.9%.	PPF new rules allow availing of loans at the rate of 1% more than the prevailing rate of interest of PPF. For instance, if the PPF serves 7.9%, the interest on the loan would be 8.9%. In case of the death of the account holder, the nominee or the legal heir shall be liable to repay the interest not repaid before the death.
Limit on Post Office Savings amount.	The limit of the amount of deposit into the PPF Account related to post office savings account is Rs 25,000.	The Department of Post has allowed deposit of post office savings account cheque of any amount (can be more than Rs 25,000) into PPF Account, subject to an overall limit, at any non-home post office branch.