The government recently notified new rules for public provident funds (PPF) accounts. PPF is one of the most popular small savings schemes, long-term investment instruments and it offers a guaranteed return. PPF accounts have a maturity period of 15 years and the government announces interest rates every quarter. For the current quarter, PPF fetches an interest rate of 7.9% per annum.
As per the rules, interest is calculated for a calendar month on the lowest balance at the credit of an account between the close of the fifth day and the end of the month. The interest is credited to PPF account at the end of each year.
New PPF rules explained in 5 points:
1) According to new PPF deposit rules, an account holder can make deposits in multiples of ₹50 any number of times in a financial year, with a maximum of a combined deposit of ₹1.5 lakh a year. Earlier, a maximum of 12 deposits were permitted in a period of 1 year.
2) The government allows premature closure of the PPF account only under specific circumstances only after five years after account opening. Under current rules, premature closure is allowed for treatment of life-threatening disease of the account holder, spouse or dependent children or parents, on production of supporting documents and medical reports confirming such disease from treating medical authority and higher education of the account holder, or dependent children on production of documents and fee bills in confirmation of admission in a recognised institute of higher education in India or abroad.
It is to be noted that in case of premature closure of PPF accounts, the account holder gets 1% lower interest than the rate at which interest has been credited to the account.
3) An account holder can take loans from PPF accounts. Under the new rules, the rates at which the account holder can borrow from his account has been reduced to 1% above the prevailing PPF interest rate, from 2% earlier. In case of death of the account holder, the nominee or legal heir shall be liable to pay interest on the loan availed by the account holder but not repaid before his death. Such amount of due interest shall be adjusted at the time of the final closure of the account.
4) The Department of Post recently allowed deposit of post office savings accounts cheque of any amount into PPF account, subject to an overall limit, at any non-home post office branch. The earlier limit was Rs 25,000. The same rule applies for post office recurring deposit, PPF, and Sukanya Samriddhi accounts.
5) “AII POSB cheques issued by any CBS Post Office, if presented at any CBS Post Office should be treated as at par cheques and should not be sent for clearing. POSB cheque can be accepted at other SOLs or service outlets ( without the restriction of amount, for credit in POSB/RD/PPF/SSA accounts, subject to the limits, if any, prescribed in the scheme,” says the notification.