The Public Provident Fund (PPF) scheme has undergone significant updates, primarily through the Public Provident Fund (Amendment) Scheme, 2019, which replaced the earlier 1968 scheme. Alongside these major overhauls, more recent clarifications have been issued, particularly concerning how interest is handled for individuals holding multiple accounts.
Recent Clarification on Multiple PPF Accounts
While the general rule strictly mandates that an individual can hold only one PPF account, recent directives have clarified how interest will be calculated in situations where multiple accounts might exist.
- Interest Accrual: For individuals found to possess multiple PPF accounts, the new rules clarify that the primary PPF account will continue to earn interest at the prevailing scheme rate. This is contingent upon the primary account adhering to the yearly investment limit of ₹1.5 lakh. This clarification aims to standardize the approach to interest accrual in such specific instances.
- Implication: This directive implies that any other PPF accounts held by the same individual, beyond the designated primary one, may not accrue interest, or their interest could be subject to specific regulatory actions. It reinforces the importance for account holders to ensure they maintain only a single, compliant PPF account to avoid potential complications.
Key Changes Introduced by the PPF (Amendment) Scheme, 2019
The Public Provident Fund (Amendment) Scheme, 2019, brought forth several crucial amendments designed to streamline operations and offer enhanced flexibility to account holders.
Deposit Rules
- Minimum Deposit: The minimum annual deposit required to keep an account active remains ₹500.
- Deposit Multiples: Deposits can now be made in multiples of ₹50, with a minimum single deposit of ₹50. Previously, this minimum was ₹5.
- Number of Deposits: The restriction on the maximum number of deposits in a financial year has been removed. Account holders can make any number of deposits, provided the total annual investment does not exceed the ₹1.5 lakh limit (the previous cap was 12 deposits per year).
- Maximum Deposit: The maximum annual deposit limit remains ₹1.5 lakh.
Loan Facility
- Reduced Interest Rate: The interest rate charged on loans taken against PPF accounts has been significantly reduced from 2% to 1% above the prevailing PPF interest rate. This makes PPF loans a more attractive and affordable option for short-term financial needs.
- Repayment Structure: The principal amount of the loan must be repaid within 36 months. After the principal is repaid, the interest component must be settled in two monthly installments.
- Frequency: A loan can be availed only once within one financial year.
Premature Closure of Account
The conditions for premature closure have been expanded, offering greater flexibility. An account can now be prematurely closed after five years from the end of the year in which the account was opened, for the following specific reasons:
- Medical Emergencies: For the treatment of life-threatening diseases affecting the account holder, their spouse, dependent children, or parents.
- Higher Education: To meet the expenses of higher education for the account holder or their dependent children.
- Change in Residency: If the account holder's residency status changes (e.g., becoming a Non-Resident Indian - NRI).
- Penalty: A penalty of 1% reduction in the interest rate will be applied for the entire period the account was held, compared to the rate originally applicable.
Account Extension after Maturity
Upon maturity, an account holder can extend their PPF account in blocks of five years, with clear options:
- With Fresh Contributions: The account holder can continue to make deposits into the extended account, which will continue to earn interest at the prevailing rate.
- Without Fresh Contributions: The account holder can choose not to make any new deposits, but the existing accumulated balance will continue to earn interest. This option offers increased liquidity, as withdrawals can be made once a year from the accumulated balance during the extended period.
Other Notable Changes
- Withdrawal Rules: In cases of account extension without fresh contributions, account holders can withdraw up to 60% of the balance that was in the account at the time of maturity, during the extended five-year block.
- Revival of Dormant Accounts: The process for reviving dormant or discontinued accounts has been clarified, requiring the payment of minimum deposits for the default years along with a nominal penalty.
- Forms: Various forms required for opening, operating, and closing PPF accounts have been updated and simplified to enhance user convenience.
Summary of Key PPF Rule Updates
| Feature | Previous Rule (Pre-2019) | New Rule (Post-2019 & Recent Clarifications) |
|---|---|---|
| Multiple Accounts | Strict prohibition; ambiguous interest treatment | Clarified: Primary account earns interest (within limits); others may not. |
| Deposit Multiples | Multiples of ₹5, minimum ₹5 per deposit | Multiples of ₹50, minimum ₹50 per deposit |
| Number of Deposits | Maximum 12 deposits in a financial year | No limit on the number of deposits (within annual ₹1.5 lakh cap) |
| Loan Interest Rate | PPF rate + 2% | PPF rate + 1% |
| Premature Closure Reasons | Very limited (e.g., death, residency change for NRIs) | Expanded (life-threatening illness, higher education, change of residency) |
| Premature Closure Penalty | 1% interest reduction for relevant period | 1% interest reduction for the entire period of account operation |
| Account Extension | Required opting in within 1 year of maturity | Clear options for extension with or without fresh contributions. |
Practical Insights
- Consolidate Accounts: If you happen to hold more than one PPF account, it is highly advisable to contact your bank or post office promptly to seek guidance on regularizing and potentially consolidating them into a single primary account. This ensures continued interest accrual and helps avoid any future complications.
- Leverage Loan Facility: With the reduced interest rate, the PPF loan facility becomes a more attractive and cost-effective option for addressing short-term liquidity needs compared to other high-interest personal loans.
- Strategic Premature Closure: The expanded reasons for premature closure provide a crucial safety net. For example, in the event of a significant medical emergency or urgent higher education needs, you can now access your PPF funds, understanding that a nominal interest penalty will apply.
For detailed official information, you can refer to the Public Provident Fund Scheme, 2019 published by the Ministry of Finance.
The new PPF rules, specifically the Public Provident Fund (Amendment) Scheme, 2019, and subsequent clarifications, aim to provide greater flexibility in managing deposits, loans, and premature withdrawals, while maintaining the scheme's fundamental structure and reiterating the single-account policy.
