How New PPF Rules Impact Your Investments?

While many of the provisions in the Public Provident Fund Scheme 2019 are also the part of the existing rules in respect of small saving scheme PPF. Few of the changes that are set to change the structure of PPF scheme need your due attention and also how they would impact your investment in PPF have been detailed for your ready reference:

PPF is a long term investment avenue with a maturity period of 15 years. Primarily it was introduced to channelize one's saving into the investment option such that the proceeds would enable an individual to meet one's financial needs post retirement from active work life.

Pre-mature closure: As per the existing rules, PPF accountholder can close the account prematurely after the end of 5 years from the end of the financial year in which the PPF account was opened in few of the listed circumstances. Some of the instances where pre-mature closure of PPF account is allowed as per current rules:

1. For the treatment of life-threatening disease of not only the subscriber of PPF account but also spouse, dependent children or parents.

2. Another instance when premature closure is allowed for PPF account is when you ought to fund your or your minor son's or daughter's higher education.

But in respect of the new rules, the provisions allow premature closure when the intended beneficiaries are dependent children.

Furthermore, new rules add another ground that allows premature closure i.e. upon the change in residency status.

Worth mentioning here that for such premature closure of the account, you would have to forego 1% rate of interest. Saying this we mean you would have to settle for a rate which is 1% lower than the rate at which interest is credited to your PPF account.

Currently for the October-December quarter interest on PPF stands at 7.9% .Interest on small savings schemes are revised on a quarterly basis depending on the yield on 10-year government bonds. And for the upcoming January-March quarter, rates are expected to go down sharply.

Also all such instances of premature closure of PPF account need to be backed by supporting documents. Say for instance when you wish to close the account prematurely for the purpose of treatment of some illness, the entity maintaining your PPF account (bank or post office) would require you to produce medical reports from the hospital where in the treatment is going on. And likewise, when you need to close the account in order to fund higher education, you need to submit the documents showing confirmation of admission in recognized institute in India or abroad.

In a case when an individual wishes to close the account prematurely due to change in residency then in such a case he or she would need to first produce a copy of passport, visa or income tax returns of the concerned year.

Interest rate on loan taken against PPF reduced: PPF also allows loan facility which can be availed from the third financial year from the account opening date. In the new rules, the rate of interest on PPF loan has been slashed from the earlier 2% higher than the existing PPF rate to 1% over and above the PPF rate. This means in the current scenario if you avail loan against your PPF account, your interest rate on it will turn out to be 8.9% per annum i.e. current rate of 7.9% plus 1%.

Maximum loan amount limit is 25% of the balance as at the end of second year immediately preceding the year in which loan is applied for. Further there is a condition which says that the principal amount needs to be repaid in 36 months time.
Also, as per both new and existing rules, interest is charged from the first day of the month in which the loan amount is secured to the last day of the month in which the last loan EMI is paid.

No attachment of PPF balance: The new PPF Scheme 2019 lays down that the PPF account balance shall not be subject to attachment under circumstances of any order or decree of court against an individual's debt or any other liability.

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