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Tax Savings PPF

Is it mandatory to withdraw all the money in my PF account at the end of 15 years?

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No. It is not necessary to redeem all the funds held in the account at maturity. The account term can be continued or extended for as long as the investor wishes to operate it. The account can be continued for 5 years per extension. Extensions can be done by depositing fresh funds or without making any further deposits.

If I need money, can I make withdrawals in addition to taking out a loan against my PPF account?

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No, withdrawals and loans are exclusive of each other as per the rules of operating a PPF account. Loan facilities are extended to account holders only between the 3rd and 6th year of operating an active account, whereas partial withdrawals are allowed from the 7th year. This means, you cannot avail of a loan from the 7th year nor can you make withdrawals before the 6th year.

This scheme was devised to promote savings and while loans and withdrawals are allowed to a certain extent for some liquidity, the scheme in general, does not aim to encourage a reduction in savings potential.

How is interest calculated? I got interest for 11 months instead of 12 months for the last year.

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For any given month, investments made on or before the 5th will be considered for interest calculations for that month. Interest is calculated on the lower of the balance held on the 5th of a month to the end of the month.

For e.g. An account held Rs 1 lakh at the start of September. The account holder decided to invest Rs 50,000 on Sep 10. In this case, the balance on the Sep 05 was Rs 1 lakh and was Rs 1.5 lakh at month-end. Here, Rs 1 lakh is the amount that will be considered for calculation of interest. The additional investment of Rs 50,000 would be considered for the month of October.

If, however, the account holder had deposited the additional Rs 50,000 on Sep 03, the balance on the Sep 05 would have been Rs 1.5 lakh. This would have been the amount considered for interest calculations for the month of September.

If I withdraw money from my PPF account, can I redeposit it to meet the minimum annual investment requirement?

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Yes, you can withdraw money for personal purposes. It can be used to invest Rs 500 required as annual investment.

What happens to the money in my account if I die before maturity?

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It can be claimed by the nominees or the legal heirs in the absence of nominees. If a nominee was named by the account holder, he/she will receive the entire amount held in the account. If more than one nominee was named, the nominees will receive funds held in the account proportionately i.e. as stated by the account holder in the nomination form.

Can I open a PPF account along with my wife or child?

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No. The option to hold PPF accounts jointly is not provided under the PPF scheme. A person can hold and operate only one account in his/her own name.

What if I wish to invest more money than Rs 1.5 lakh limit?

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Interest will be calculated and paid out only on amounts up to Rs 1.5 lakh for any year. Only the maximum annual investment limit i.e. Rs 1.5 lakh a year will be considered towards all PPF calculations for all purposes.

Can I continue to use an inactive account?

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Yes. You can do so by paying the holding branch a penalty of Rs 50 for every year the account was inactive. You will also have to deposit a minimum of Rs 500 for every year the account was inactive as well as Rs 500 for the year you are activating the account.

I deposited money in my parents’ PPF accounts but did not qualify for tax deduction under Section 80C. Why?

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Only contributions made to an account holder’s own account, his/her spouse’s account or his/her minor child’s account can be claimed as deductions under Section 80C of the Income Tax Act. The total contribution to any one or all of the above person’s account is subject to the investment cap of Rs 1.5 lakh per annum.

I deposited money in my wife’s PPF account. Who can avail of the tax deduction?

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In this case, it will be you who will be able to avail of the tax deduction. The person making the contribution is eligible for tax deductions under Section 80C.

I want to leave some money to my grandchild. Can I open the PPF account on her behalf?

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No. Grandparents cannot open PPF accounts in their grandchildren’s names. The amount can be given to the parent/guardian who can open and operate the account in the name of their minor child/ward. However, if both parents of the minor child die, the grandparents, as guardians, can open and operate a PPF account for the minor child.

How can a nominee/legal heir claim funds in a PPF account?

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Nominees or legal heir can claim funds in a PPF account when the account holder has passed away. They will be required to produce proof of death of the account holder. Nominees can claim funds in the proportion stated by the account holder in the nomination form.

Will I continue to earn interest on my account if I extend the maturity period beyond 15 years?

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Yes. Interest will be calculated and paid out based on the interest rates prevailing during the period of extension. If no fresh deposits are made during the period of extension, interest will be calculated based on the balance held at the end of the 15th year. If fresh deposits are made to extend the term, it will be added to the balance at the end of the 15th year and the total amount will be treated as principal for interest calculations.

How long can I extend my account for?

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PPF accounts have a maturity period of 15 years. However, this can be extended for as long as the account holder wishes to continue it. Extensions can be done for 5 years at a time. For e.g. if an account matures on Mar 31, 2015, it can be extended till Mar 31, 2020. The next extension will be until Mar 31, 2015 and so on.

Can I extend my account for 2 years on maturity?

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Extensions can be made in blocks of 5 years each.

If I open a PPF account in my minor child’s name, can I claim tax deductions from both accounts i.e. my child’s and mine, when I file taxes?

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The maximum investment cap of Rs 1.5 lakh applies to all contributions you make to your account, your minor child’s account and/or your spouse’s account, collectively. Only amounts up to Rs 1.5 lakh can be claimed as deduction under Section 80C of the Income Tax Act. For e.g. if you contribute Rs 1 lakh toward your account and Rs 1 lakh towards your child’s account, you can claim only Rs 1.5 lakh as deduction and not Rs 2 lakh.

Can I increase my investment under the PPF scheme by opening 2 or more accounts in my name?

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No. Under the Public Provident Fund Scheme, a person can hold and operate only one account in his/her name.

The limit was raised from Rs 1 lakh to Rs 1.5 lakh mid-way through 2014. If the limit is raised this year in the same way, how will I make the additional deposit? Should I wait for next year?

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When the limit is raised during a financial year, banks and post offices are instructed to accept additional investments if investors wish to contribute up to the revised maximum limit. This is what was done last year for those who wished to contribute up to Rs 1.5 lakh under the revised limit.

Will I continue to earn returns if my account is inactive?

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No. Interest will not be calculated for the year(s) the account is inactive. Once the account is revived, interest will be calculated on the balance held at time of revival.