Public Provident Fund is a small savings plan, which also gives good returns
Mumbai: Public Provident Fund is a small savings scheme, which also gives good returns and its biggest benefit is tax. It has a higher return than most popular fixed deposits and the government guarantees it. It also benefits employees by deducting tax on investments. In addition, both interest income and maturity are tax free.
People have a very important question, what if the account holder dies prematurely? What are the rules after that? Can that account continue? So the answer is no.
If the PPF account holder dies, his nominee cannot continue the account. After the death of the account holder, the nominee gets all the amount including interest. There is no lock-in period for the nominee. To get this amount, the nominee has to submit Form G. The nominee will then receive the amount.
Can an employee close this account on their own?
The Public Provident Fund is a tax saving investment tool with a long lock-in period. Its lock-in period is 5 years. Withdrawals are available from the sixth year of the financial year after the account is opened. The maturity of this account was in 15 years.
In addition the PPF account can be closed before the lock-in period of 5 years, but it has certain conditions. If the account holder, spouse or dependent has a serious illness, the account may be closed.
This account can also be closed in the name of higher education of the child or higher education of the account holder.
If the account holder becomes an NRI, the account can be closed. However, 1% interest is deducted as a pre-mature closure penalty. This applies from the date of account opening.
Loan facility
Currently, the interest rate on PPF is 7.1 per cent and it is paid on an annual basis. The Ministry of Finance decides the interest rate every three months. Loan facility is also available on PPF account.
If the account is opened in the financial year 2020-21, the loan facility will be available from the financial year 2022-23.
The loan facility is available till the sixth year of the financial year in which the account is opened. The loan will be available only once in a financial year and the second loan will not be available until the first loan is repaid.
What is the interest rate on the loan?
If the loan is repaid within 36 months, the interest rate will be only 1%. But if the interest is not repaid even after 36 months, the interest rate will remain at 6 per cent. The calculation of interest starts from the time the loan amount is declared.
