5 Key Changes in PPF Account Rules That You Must Know

22 Jul 2022

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Saving for retirement is incredibly important. The Government of India offers several schemes geared toward the same. Most of these schemes also come with tax deduction benefits. One such popular scheme that allows you to create a lumpsum retirement corpus is the Public Provident Fund or PPF. The GOI has introduced some changes to this incredibly popular scheme in recent years. Let us understand what PPF is along with the new PPF rules.

What is PPF Account?

The Public Provident Fund account is a type of long-term savings-cum-investment account that offers tax deduction under Section 80C of the Income Tax Act of 1961. You can deposit up to Rs 150,000 per annum in your PPF account and earn interest on your deposits. The deposited funds, interest earned, and the maturity amount are entirely tax-free. The minimum investment tenure for PPF is 15 years, and you can extend your account in blocks of 5 years.

PPF – Latest Rules

The GOI made some tweaks to the existing PPF Account rules in 2019. Below are the five new PPF rules.

1. PPF Account Extension

You need to submit Form 4 to extend your PPF scheme account after it matures. You must do so within one year of the maturity date of your original PPF account or the extended PPF account. You no longer need to submit Form H. Moreover, you can retain your PPF account after it matures without depositing more funds and continue to earn interest on your account balance per the applicable PPF interest rate.

2. PPF Account Deposits

Earlier, you could deposit funds in your PPF account only twelve times during a financial year. However, per the new PPF rules, there is no restriction on the number of deposits. You can deposit funds in multiples of Rs 50, but, per usual, your maximum annual deposits cannot exceed Rs 150,000. Also, you must still deposit a minimum of Rs 500 per annum in the PPF account.

3. Premature Account Closure

Earlier, you could close your PPF account prematurely only under certain specific circumstances. For instance, you could close the account prematurely if you needed money for higher education or medical treatment after five years from the account opening date. But per the latest PPF account rules, you can also close your account if your residency status changes from Resident to Non-Resident Indian. You must provide a copy of your passport, visa, or latest income tax returns if you wish to close your account prematurely.

4. Interest Payment on Loans Against PPF

The GOI has reduced the loan interest spread over interest payment on PPF account deposits. Earlier, account holders who obtained loans against their PPF deposits had to pay a 2% interest rate per annum above the prevailing PPF interest rate. However, per the new PPF rules, the government has reduced the interest spread from 2% to 1%, thus reducing the cost of loans against PPF deposits.

5. Loan Repayment Terms

While the government has reduced the cost of loans, new PPF rules dictate that you must repay your loan against PPF deposits within 36 months. If you fail to repay the loan, partially or entirely, you will have to pay the penal interest charged at 6% per annum.

How to Open PPF Account with Bank of Baroda?

You can now open your PPF account with Bank of Baroda online, from the comfort of your home, or by visiting your nearest Bank of Baroda branch. You must submit copies of your KYC documents and deposit at least Rs.500 to open your account. Visit the bank of Baroda website to know more about the PPF account benefits.

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