Five lesser-known rules for PPF Accounts

5 MinsApr 1, 2021

Aarini Patil, 23, started working less than a year ago. She is considering opening a PPF Account (Public Provident Fund). She has researched the investment option but is still unsure.

open ppf account

Thanks to her research, Aarini knows that PPF falls under the EEE (exempt-exempt-exempt) tax status, i.e. the amount invested, the interest earned, and funds received on maturity are all tax-exempt. However, she wants more clarity before she opens an account.

Here are five rules that Aarini should consider before making her investment.

You may get more time for investing

In the case of most financial investments, the calculation date for maturity starts when you start your account or make the first payment/deposit. But in the case of PPF, the 15-year lock-in period is calculated from the end of the financial year in which it was opened. This effectively means you may get additional time if you begin your investment in the middle of a financial year.

For example: If Aarini makes her first deposit on May 20, 2021, her lock-in period will start from March 31, 2022, and her account will mature on 31 March 2037. So effectively, she will get 11 additional months starting from the date of her first investment.

You can time your deposit to earn more interest

In a fixed deposit account, the interest calculation on the amount deposited starts immediately. However, in the case of PPF accounts, the balance amount considered for interest calculations is the minimum between the 5th of the month and the month's end. So, if Aarini is planning to make monthly deposits in her PPF account, she should do so before the 5th of every month. This way her account will have a higher balance and the interest will be calculated on that, fetching her a higher return. Otherwise, interest will be calculated on the previous month’s balance, which will be lower and hence, she will earn a lower amount. On a monthly basis, this may seem like a small amount, but over 15 years, there may be a noticeable difference. One point to remember is that interest is only credited at the end of the financial year i.e. in March. So Aarini has to keep these dates in mind when she deposits money in her account.

[Also Read: Here’s How to Open a PPF Account]

You can borrow as well as make partial withdrawals

Even though PPF has a lock-in period of 15 years, investors can make partial withdrawals and avail of loans against PPF accounts. All you have to do is to keep in mind certain conditions. For example, up to the 7th year, Aarini can take a loan, for which she will be charged an interest rate that is 1% higher than the PPF interest rate. From the 7th year onwards Aarini will be eligible for partial withdrawals, but not for a loan. If Aarini has taken a loan, she can still make a partial withdrawal after 7 years, provided she repays the loan outstanding amount along with interest before availing of the withdrawal facility.

You can operate your PPF account even as an NRI

Any resident citizen of India can open and operate a PPF account. NRI citizens are not allowed to open a new account. But if they have an existing account that was opened while they were resident in India, they can continue to operate it, i.e. make regular deposits, till the 15-year maturity period. Thus, if Aarini moves abroad, for work or after marriage, she can continue with her PPF account and enjoy the tax exemption. However, she would be allowed to extend it beyond the 15-year lock-in period.

Only you can access your PPF money

One of the best features of a PPF account is that it is safe from a debt recovery process. Even in case of court orders ordering attachment of assets for repayment of debt owed, an individual's PPF account is exempt from such an order, thus guaranteeing him or her some income. Thanks to this rule, Aarini will always have a backup of funds in her PPF account.

The Government of India has authorized Axis Bank to offer PPF account services to customers. The advantage of opening a PPF account with Axis Bank is that you can invest online by linking your Axis Bank savings account and the PPF account. You can also view the balance as well as print statements. In case you want to withdraw some funds from your PPF account prematurely, speak to your Relationship Manager who will help you with the process.
To know more about PPF accounts with Axis Bank, visit the website.

Disclaimer: The Source, a Mumbai-based content creation and curation firm has authored this article. Axis Bank does not influence the views of the author in any way. Axis Bank and The Source shall not be responsible for any direct/indirect loss or liability incurred by the reader for taking any financial decisions based on the contents and information. Please consult your financial advisor before making any financial decision.