The Department of Post, simply known as the “Post Office”, is one of India’s largest and oldest institutions. Currently, it boasts the most extensive network of postal distribution system across the globe.
Alongside the delivery of mails, the Post Office also offers several financial services, which include savings schemes like the Public Provident Fund (PPF). With a PPF Post Office, individuals can park their excess funds to earn risk-free returns, and leverage it to build substantial savings.
The Central Government features several schemes like the Public Provident Fund to encourage individuals for institutional savings. This fund operates per the guidelines of the PPF Scheme, 2019. Individuals can contribute routinely into the Post Office PPF scheme not only to earn hefty returns but also enjoy several tax benefits. However, it is first essential to develop a better understanding of this scheme to ensure sound investment decisions.
The guidelines for opening a Post Office PPF account are –
One shall also note that Hindu Undivided Families (HUFs) and NRIs cannot hold an account under this scheme, which is solely meant for resident individuals.
To open a Post Office PPF account, aspirants can follow the steps mentioned below –
Step 1 – Visit the nearest post office or sub-post office and collect the PPF application form.
Step 2 – Fill out the application form and present it with other necessary documents.
Step 3 – Provide an initial deposit amount of Rs. 500 in cheque or cash.
Once the concerned person verifies all documents and finds every formality in order, such a PPF account will be operational. Following that, the account holder shall receive a passbook, containing details of the PPF account. Note that one can also download the form for a Post Office PPF account online.
The documents one may require to fill and provide for PPF account application are –
Individuals will need to carry both original and photocopies of these documents when applying for this scheme.
The minimum tenure for a PPF account with the Post Office is 15 years. That means an account holder cannot, under natural circumstances, close it before completion of 15 years of opening it. For example, if Mr Bhutta opens an account on 1st October 2020, he can close it on 1st October 2035. It’s also possible to extend the tenure by 5 years indefinitely.
Account Holders need to deposit a minimum of Rs. 500 each year in their Post Office PPF account. The ceiling for annual contributions is Rs. 1.5 lakh per account holder. Moreover, if a person also holds an account in their minor’s name, their total yearly contribution should not exceed that limit either. One can also make contributions in their PPF Post Office account online via mobile banking/Intra operable net banking, or IPPB savings account.
In case an individual decides to extend the tenure of such fund by five years, and so forth, he/she need not make additional deposits during such period. However, as per new rules, if there’s no deposit for more than a year of such extension, an individual cannot make any further contribution to that account in the remaining tenure.
Account holders can avail a loan against PPF from the Post Office between the 3rd and 6th financial year of opening such an account. They can avail a loan equivalent to 25% of the standing balance at the end of the 2nd year or the year preceding such application.
The following table shows the hypothetical investments of Ms Banerjee in a Post Office PPF account.
|Year||Opening Balance (Rs.)||Investments (Rs.)||Closing Balance (Rs.)|
|2019 – 20||0||1 lakh||1 lakh|
|2020 – 21||1 lakh||50,000||1.5 lakh|
|2021 – 22||1.5 lakh||80,000||2.3 lakh|
|2022 – 23||2.3 lakh||50,000||2.8 lakh|
|2023 – 24||2.8 lakh||1 lakh||3.8 lakh|
Note – The interest component has been avoided in this illustration for simplicity.
If she applies for a loan against PPF in FY24, she will be eligible for 25% of Rs. 2.3 lakh, since it is the closing balance of the 2nd year immediately preceding the application.
Such amount will accrue applicable Post Office PPF interest rate plus 1% p.a. That’s because the PPF deposit will not earn any interest until such loan is repaid. The borrower shall repay the entire amount within 36 months, with interest being repaid in two EMIs after payment of the principal amount.
Individuals can withdraw once a year from their Post Office PPF account from the 7th year onwards. For instance, if Mr Khan has opened a PPF account on 1st April 2015, he can make partial withdrawals from 1st April 2022. Such withdrawal amount shall be lower of:
If Mr Khan decides to withdraw in FY25, he can withdraw the lower of 50% of FY24’s closing balance or 50% of FY21’s closing balance.
An account holder can close an account after 6 years from the date of opening such PPF account. He/she can close an account under the following circumstances:
In the case of premature closure of PPF Post Office account, however, such account holder shall face a 1% reduction in interest.
The contributions are exempt for up to Rs. 1.5 lakh per year under Section 80C. Returns earned, and the withdrawals are also entirely exempt from taxation.
Individuals can nominate one or more persons when opening the account with Post Office or during the tenure.
Interest is calculated monthly on the lower of the two balances –
The Post Office PPF account interest rate is revised quarterly by GOI. For FY21 Q2, this rate was 7.1%.
The total interest earned in a year is added to the account’s closing balance, which makes the opening balance of such following year. This way, interest is compounded every year to provide higher returns to account holders.
Individuals shall consider, based on the features as mentioned above, whether those align with their objectives before investing in the PPF Post Office scheme.