Tax and Law Advisor

OPEN PPF ACCOUNT AND HOW TO REVIVE IF CLOSE

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The Public Provident Fund (PPF) is a popular long-term investment option backed by government of India which offers safety with attractive interest rate and return that are fully exempted from tax.

One has to invest a minimum of Rs 500 a year (maximum allowed is Rs 150000 lakh in a financial year) to keep the account active during its 15 year term. There are people who are not able put in money into their PPF account every year or some who may just forget to do so.

The subscriber will get back his amount only after the expiry of the maturity period of 15 years along with interest which will continue to be added each year (even in the discontinued account) on the balance at a rate fixed by the government from time to time.

In case a PPF account holder fails to contribute the minimum amount in any subsequent financial year (April 1 to March 31), the account is treated as discontinued.

A discontinued account cannot be closed before the maturity date. However, if one wants to revive the account, it can be done any time before its maturity date, which is mentioned on the PPF passbook.

What subscriber loses?

There are the some major subscriber loses:- 

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  1. An important amendment to the PPF rules happened in 2016 when the government allowed premature closure of the PPF account in extreme circumstances like treatment of life threatening diseases or for children’s higher education, anytime after five years subject to a lower rate of interest. A discontinued PPF account loses this advantage unless revived.
  2. You can take a loan against the balance in the account anytime after the third financial year but till the end of the sixth financial year. A discontinued PPF account loses this advantage unless revived.

 

  1. PPF account holder is allowed to make certain partial withdrawals from the seventh year onward till maturity. A discontinued PPF account loses this advantage unless revived.

 

  1. In case the account holder wishes to open another PPF account in addition to the discontinued one, the rules anyhow don’t allow opening more than one PPF account.

 Process to revive PPF Account

The process to revive one’s discontinued PPF account involves submitting a written application for reviving the account at the bank or post office where it was opened.. Additionally, a penalty of Rs 50 for each year of default, Rs 500 for each year as arrear payment, and a minimum of Rs 500 as subscription for the year in which the account is being revived is to be paid.

What you should do

Since the PPF has a long tenure of 15 years, the impact of compounding is huge, especially in the later years. Further, because the interest earned is backed by sovereign guarantee, it makes it a safe investment. Do not let the account get discontinued and if it has already happened, revive it now. Diversifying one’s savings in PPF and equities may help achieve long-term goals rather than relying entirely on just one of them.

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