Because of its sovereign guarantee and tax advantages, the Public Provident Fund (PPF) is a prominent debt investment option. The guidelines covering PPF accounts, on the other hand, are rigid, and one must be conscious of them to reap the full benefits of PPF. If these regulations are not followed, the government may mark the account as irregular. The account may be closed, the contributions may be halted or returned, and interest payouts may be halted if a PPF account becomes irregular. After that, it will take a long time to get your PPF account in force. A PPF account can become abnormal in several ways which are as follows.
PPF account opening rule
Only one PPF account can be opened under a single name, according to the regulations. People who have a PPF account in a bank are not allowed to open another account in a post office and vice versa. If anyone opens two accounts by default, the second account will be regarded as an irregular account that will not receive interest until the two accounts are merged. Either the father or the mother can open a PPF account on behalf of a minor. Both parents cannot open a separate account for the same minor in order to prevent having multiple accounts. As a result, an individual can open one PPF account for each minor for whom he or she is the guardian.
Contribution limit rule
If an account holder contributes more than Rs 1.5 lakh in a year, the deposits will be considered irregular and will not earn interest or be liable for a tax gain under Section 80C of the Income Tax Act. As a result, without any interest, the concerned post office will reimburse the excess amount to the account holder.
Joint account rule
A joint PPF account is not allowed to open. It is only possible to specify the details of a nominee while opening an account. As a result, only one account can be opened and not a joint account in any Post Office or Bank in the country.
Account extension rule
After the 15-year term has expired, the PPF account may be extended indefinitely. However, if one continues to contribute during the extension period without consulting the post office, it can become irregular. If you wish to hold your account open and make fresh deposits, you must notify the post office in writing one year before it expires by filling out Form H. If one continues to deposit after filling the Form, all new contributions will be considered irregular and no interest will be provided. Section 80C benefits will not be applicable on contributions made in a PPF account after the 15-year period has expired without using the benefit to continue the account.
Premature closure rule
Premature closure of PPF accounts is allowed after five years of account opening, under exceptional situations such as the account holder's, spouse's, or dependent children's or parents' treatment for serious disease, or for the children's higher education. If an account is prematurely closed, 1 per cent interest is deducted from the date of account opening/extension, if necessary. The account will be closed if the account holder expires, and the nominee or legitimate heir(s) will not be able to continue making deposits in the account. PPF interest will be paid at the end of the preceding month in which the account is closed if it is closed due to death.
What happens when a PPF account is marked as irregular?
Your PPF account would have been inactive if you didn't contribute for a year. As a consequence, the account will become dormant, and a penalty will be levied. As a PPF subscriber, you can even miss access to certain perks. You must contribute at least Rs 500 per year to keep your account active. Although disabling your account will not result in the loss of your savings, you will no longer be able to contribute to it. You will not be eligible to take advantage of the benefits and services available to members with active accounts. For example, from the third to the sixth financial year after opening the account, a subscriber with an active PPF account is entitled to take a loan of 25% of the balance amount available. This option will be inaccessible if your account is deactivated. Those with a dormant or deactivated account are also ineligible for the partial withdrawal option, which enables customers to access a portion of their PPF contributions after the seventh financial year since account opening. Accounts that have been deactivated are also not allowed for premature closure of the account. You will only be allowed to withdraw the entire amount at maturity, which is 15 years since the account was opened, once it has been discontinued. Though you won't be able to contribute to the account once it's closed, the capital you've already deposited will continue to gain interest until it matures. You must pay the penalty for the duration of deactivation in order to withdraw the accrued capital. One benefit that you would miss if you did not contribute to PPF is the tax benefit. PPF comes under EEE or 'exempt, exempt, exempt,' which ensures that subscribers can claim a tax benefit up to Rs 1.5 lakh from their deposits under Section 80C and receive tax-free interest and returns.
How to activate an irregular or dormant PPF account?
To reactivate an inactive PPF account, you must submit a written request to the bank branch or post office where your account is maintained. A penalty of Rs 50 is imposed for each financial year that your account has been inactive, which must be paid to start the reactivation procedure. You must also pay the Rs 500 minimum deposit for each year your account has been dormant. Your PPF account will be reactivated once the approval process is completed by your concerned post office or bank.
Nirmala Sitharaman, the Union Finance Minister, recently announced that the rate of interest on small saving schemes will remain the same as it was in the last quarter of 2020-2021. This means that for the quarter ending 30 June 2021, your PPF will continue to earn a 7.1 per cent interest rate.