How PPF account works

The Public Provident Fund (PPF) is one of the most popular investment options in India. One of the reasons for this is the tax benefit it offers - it comes under the EEE (exempt-exempt-exempt) tax status. Due to the tax benefits offered, many open PPF accounts with their bank/post office to build a sizeable corpus.

PPF provides income tax deduction under section 80C for the amount invested (subject to a limit of Rs 1.5 lakh a year). Interest earned is exempt from tax and there is no tax on the amount received on maturity of the account. Withdrawals are tax-free too.

PPF accounts have a lock-in of 15 years. On maturity, the investor has the option of taking any one of the following steps:

1) Withdraw the proceeds and close the account.
2) Extend the account for a block of five years.
3) Continue without any contributions.

Remember, the PPF account cannot be closed before maturity unless in case of specified circumstances. If you wish to close the account, visit the bank branch /post office where the PPF account is held. A written application to withdraw the proceeds and close the account needs to be given with the original passbook. Bank details for maturity proceeds to be transferred have to be mentioned. Address and identity proof must be attached with a cancelled cheque. The bank/post office will check if the account has completed its lock-in. If yes, account will be closed and maturity proceeds credited to bank account.

You need to give an intimation in writing on a prescribed form to the bank/post office within a year of maturity of the account. You can keep the account operative with the balance standing to the credit of the account, without making any new contributions. You can also keep making deposits and continue to avail tax deductions on such deposits. Once the block of five years is over, the account can be continued for another block of five years and so on. The account will continue to earn interest until it is closed.

1) PPF account cannot be attached by a person to pay off debts. A court decree also cannot ask the person to pay off debts using funds in his PPF account.

2) During the first 15 years of the account, partial withdrawals are possible from the 7th year, subject to certain conditions.

(Content on this page is courtesy Centre for Investment Education and Learning (CIEL). Contributions by Girija Gadre, Arti Bhargava and Labdhi Mehta.)