Thursday, March 1, 2012

Public Provident Fund - A shocker

I am sure you have heard of the Public Provident Fund [PPF] scheme in India. If you live in India it is very likely that you have a PPF account. Well, for the benefit of those who don’t have a PPF account, let me tell you that you are missing out on one of the best savings schemes in India, bar none. Yes, you can deposit only Rs.100,000/- a year but that can balloon to a rather hefty amount over time.

If your PPF account is more than 15 years old you need to read this with much seriousness.

The way PPF works is that you open an account with a nationalised bank. You could earlier deposit a maximum of Rs 70,000 a year in the account which has been raised to Rs. 100,000 from the financial year 2011-12. The money remains locked in for some 6 years after which you can withdraw miniscule amounts. The amount deposited gives you a small break in your Income Tax too. The amount in your PPF account gets interest at some 8 odd percent which is compounded rather regularly and it’s tax free. So opening a PPF account and depositing Rs 100,000 in it during April of every year is a very, very sensible thing to do.

The Account is open for an initial duration of 15 years. After which you can extend it for blocks of 5 years at a time. Everything was hunky dory and lots of Indians were wallowing in the comfort of a well funded PPF account. Needless to say this happy situation could not last for long.

Our collective nanny, the Government, has recently imposed some new conditions on extension of the PPF account. After 15 years you are required to extend your account by filing a `prescribed’ form. The Nationalised Banks running the PPF scheme soon grew tired of all this form filling and gave this procedure a go by and officers indicated that this was no more required. Then there was a dreaded `audit’ of the goings on in the PPF schemes and accounts.

The auditor pointed out that in case of PPF accounts older than 15 years many account holders had not applied for extension of their accounts. So, armed with this drastic observation our Nanny has dictated that in the event a PPF account holder had not applied for extension of his PPF account within one year of expiry of 15 years or within one year of expiry of any block of 5 years, such account had to be shut. This means that you cannot make any further contributions to your PPF account. You would not be eligible to any interest on your money from the expiry of the account. Drastic is it not? 

You may have deposited money in an expired account, your passbook would have been updated, your passbook would have shown credit of interest, and you may have even claimed an income tax deduction on the PPF contribution you made, but, all this is to no avail. Unless you held a duly approved extended PPF account you stood to lose a lot, and your account had to be shut.

The only way to get your account `regularised’ was to make an application to the Under Secretary, Government of India, Department of Economic Affairs, National Savings Branch to get an extension. This process takes about 60 days. So, if you have an expired PPF account and have not had it extended you are in deep trouble.

In the event you are one of those people who deposits his PPF only in March i.e. at the end of the financial year and not the beginning of the year in April, let me tell you, you are a real looser. You cannot make your deposit this year with an expired account. And, to make matters worse, even if you do apply to the Nanny to have your account extended, this will not happen till well after the end of this financial year.

Anyway, do not despair, get your PPF account checked and make the application, if required, quickly.   


  1. Thanks a million for the timely advice.

  2. Most welcome. I had to go thru the agony.

  3. Luckily, I have applied for (rather insisted on applying for) extension every five years after the initial 15 years period in spite of the concerned officilas not too keen or knowledgeable on this issue. Another misconception these bank officilas have is that the PPF Account can be extended for 3 blocks of 5 years only which I will have to fight our armed with the PPF Act & Rules. God give me courage and some stuff & knowledge to thises ignorant and yet stubborn bank officials !!.

    Atul Vachharajani