Summary of the rules for the Public Provident Fund Scheme, 2019
PPF Scheme 2019
The government has replaced the Public Provident Fund Scheme, 1968, with the new Public Provident Fund Scheme, 2019. The new rules became effective on December 12, 2019. This was done under the powers conferred by section 3A of the Government Savings Promotion Act, 1873.
• Short Title and Commencement (Rule 1): The scheme is called the Public Provident Fund Scheme, 2019. It came into effect on the date of its publication in the Official Gazette.
• Definitions (Rule 2): The document provides definitions for terms such as "account," "account holder," and "year" (which means the financial year). Other words and expressions not defined in the scheme have the meanings assigned to them in the Government Savings Promotion Act, 1873, and the Government Savings Promotion General Rules, 2018.
• Limits on Number of Accounts (Rule 3): An individual can open an account by applying in Form-1. An individual can also open a separate account for a minor or a person of unsound mind for whom they are the guardian, but only one account can be opened for a minor or person of unsound mind by any guardian. Joint accounts are not permitted under this scheme.
• Limits of Subscription (Rule 4): The annual deposit limit is a minimum of ₹500 and a maximum of ₹1,50,000, in multiples of ₹50. The maximum limit of ₹1,50,000 for an individual includes deposits made into their own account and any accounts opened on behalf of a minor.
• Manner of Making Deposit (Rule 5): The account must be opened with an initial deposit of at least ₹500. After that, deposits can be made in any amount in multiples of ₹50, subject to the annual limits. Deposits can be made in a single lump sum or in installments.
• Discontinuation of Account (Rule 6): An account becomes "discontinued" if the account holder fails to deposit the minimum amount of ₹500 in a year after the initial year. A discontinued account can be revived before its maturity by paying a fee of ₹50 and arrears of the minimum ₹500 deposit for each year of default. A discontinued account that is not revived will continue to earn interest. The holder of a discontinued account cannot open a new account until the discontinued one is closed after maturity. Loans and partial withdrawals are not allowed from discontinued accounts, and these facilities are only available for regular accounts. The total annual deposit limit includes deposits made for years of default, but not the default fee.
• Interest (Rule 7): Interest is earned at a rate of 7.9% per annum on the lowest balance in the account between the close of the fifth day and the end of each calendar month. The interest is credited to the account at the end of each year.
• Loans (Rule 8): An account holder can apply for a loan after one year from the end of the year the initial subscription was made, but before five years have passed from that same date. The loan amount cannot exceed 25% of the balance at the end of the second year preceding the year the loan is applied for. A guardian can apply for a loan for a minor or a person of unsound mind by providing a certificate confirming the funds are for their welfare. A new loan cannot be taken until a previous one, including its interest, is fully repaid. An account holder is entitled to only one loan per year.
• Repayment of Loan and Interest (Rule 9): The principal amount of the loan must be repaid within 36 months from the first day of the month following the loan's sanction. Repayment can be in a lump sum or installments. After the principal is repaid, interest at 1% per annum on the principal must be paid in no more than two monthly installments. If the loan is not repaid within 36 months, the interest rate increases to 6% per annum on the outstanding amount. The interest on outstanding loans is debited to the account at the end of each year. In the case of the account holder's death, the nominee or legal heir is responsible for repaying any outstanding loan interest, which will be adjusted at the time of final account closure.
• Withdrawal from Account (Rule 10): An account holder can make a withdrawal after five years from the end of the year the account was opened. The withdrawal amount cannot exceed 50% of the balance at the end of the fourth year preceding the year of withdrawal, or the balance at the end of the previous year, whichever is lower. Any outstanding loan and interest must be paid off before a withdrawal can be made. Withdrawals can only be made once a year and only from non-discontinued accounts. A guardian can apply for a withdrawal for a minor or a person of unsound mind by providing a certificate stating the funds are for their welfare.
• Closure or Continuation of Account (Rule 11): After 15 years from the end of the year the account was opened, the account holder can apply in Form-3 to close the account and withdraw the entire balance with interest. Alternatively, the account holder can keep the account open without making deposits, and the balance will continue to earn interest. In this case, one withdrawal per year is permitted. If the account is continued for more than one year without deposits, the option to continue with deposits is no longer available.
• Extension of Account (Rule 12): Upon maturity, an account holder can extend the account for a further five-year block period by applying in Form-4 before one year from maturity. The option to extend can also be exercised by the guardian for a minor or a person of unsound mind. If the extension option is not given within one year of maturity, no further deposits can be made; any irregular deposits will be refunded without interest. The balance in such an account will continue to earn interest until closure. For extended accounts, partial withdrawals are allowed, but the total withdrawal during the five-year block period cannot exceed 60% of the balance at the start of the block period. Withdrawals can be made in a single sum or in yearly installments. The rules for extension apply to each subsequent five-year block period. If an account is continued with deposits for one or more block periods, the account holder can later choose to leave the account without deposits, in which case it will continue to earn interest and one withdrawal per year is allowed. Once the option to extend is given, it cannot be withdrawn later.
• Premature Closure (Rule 13): Premature closure of an account is allowed on specific grounds after a minimum of five years from the end of the year the account was opened. The eligible grounds are:
o Treatment of a life-threatening disease for the account holder, spouse, dependent children, or parents, with supporting documents.
o Higher education for the account holder or dependent children, with proof of admission and fee bills.
o Change in the account holder's residency status, with a copy of the passport, visa, or income tax return.
o Upon premature closure, the interest rate will be 1% lower than the rate at which interest has been credited to the account since it was opened or extended.
• Closure on Death (Rule 14): If the account holder dies, the account is closed, and the nominee or legal heir cannot continue it. The balance will earn interest until the end of the month before the month in which the payment is made to the nominee or legal heir.
• Protection of Credit Balance (Rule 15): The money in a PPF account is not subject to attachment under any court order or decree for debt or liability.
• Application of General Rules (Rule 16): The Government Savings Promotion General Rules, 2018, apply to matters not covered by this scheme.
• Power to Relax (Rule 17): The Central Government can relax any of the scheme's provisions if it believes they cause undue hardship to an account holder, as long as it is consistent with the Government Savings Promotion Act, 1873.
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