PPF - Accounts To Offer More Benefits

PPF or public provident fund is one the most popular saving schemes. Apart from higher interest rates compared to bank deposits, PPF also offers a host of income tax benefits. In terms of income tax implications,PPF enjoys an EEE – exempt, exempt, exempt – status. This means the contribution, interest and maturity proceeds are all tax-free. PPF contribution up to Rs. 1.5 lakh in a financial year is eligible for tax deductions under Section 80C of the Income Tax Act. Now, PPF accounts are likely to come with more benefits.

Here are 10 things to know about thechanges proposed in PPF rules:

1. The government has proposed to allow premature closure of Public Provident Fund (PPF) accounts.

2. According to the current PPF account rules, premature closure of PPF account is allowed only under specific conditions such as expenditure towards medical treatment and higher education. The account has to complete at least five financial years.

3. “To make provisions for premature closure easier in respect of all schemes, provisions could now be made through specific scheme notification. The benefits of premature closure of small savings schemes may now be introduced to deal with medical emergencies, higher education needs, etc,” the Ministry of Finance said in a statement.

4. The government has also plans to consolidate PPF Act under the proposed Government Savings Promotion Act. The government has said that “no existing benefits to depositors are proposed to be taken away through this process”.

5. “The main objective in proposing a common Act is to make implementation easier for the depositors as they need not go through different rules and Acts for understanding the provision of various small saving schemes, and also to introduce certain flexibilities for the investors,” the Finance Ministry said.

6. PPF accounts are immune from attachment under court decree order. The Finance Ministry has also clarified that there is no proposal to withdraw the provision and the existing and future depositors will continue to enjoy protection from the attachment under the amended umbrella Act as well.

7. The government has also said that apart from ensuring existing benefits, certain new benefits to the depositors have been proposed under the bill to merge Government Savings Certificates Act, 1959 and Public Provident Fund Act, 1968 with the Government Savings Banks Act, 1873.

8. “The existing Acts are silent about grievance redressal. The amended Act allows the Government to put in place mechanism for redressal of grievances and for amicable and expeditious settlement of disputes relating to Small Savings,” the Finance Ministry said.

9. As per existing provisions of the Acts, if the depositor dies and nomination exists, the outstanding balances will be paid to nominee(s). But Supreme Court in its judgement stated that nominee(s) is merely empowered to collect the amounts as trustee for the benefit of legal heirs, the Finance Ministry said. “It was creating disputes between the provisions of the Acts and verdict of Supreme Court. Hence, right of nominees have now been more clearly defined,” the ministry said in a statement.

10. No change in interest rate or tax policy on small savings scheme is being made through this amendment, the government clarified. The interest rate on PPF accounts, like other small savings schemes, is reset on a quarterly basis. Currently, PPF accounts fetch an interest rate of 7.6 per cent (for January-March quarter).