A popular investment choice like PPF comes with a strict set of rules. Let’s find out how it can become idle due to non-adherence to these rules.
While a large segment of individuals has resorted to investing in Mutual Funds owing to a sharp decline in Fixed Deposit interest rates, there are still many who like to maintain an investment portfolio comprising a combination of conservative and risky, market-linked investments like Mutual Funds. Conservative investments like PPF may not offer returns as attractive as Mutual Funds. But unlike Mutual Funds, these returns are backed by a sovereign guarantee. So, even if the nation goes to war, your returns are safe and protected. PPF also comes with a host of tax benefits.
A PPF account, however, comes with a set of stringent rules that can work to your advantage, provided you adhere to them. An important thing to note here is that non-adherence to these rules can leave your account idle or irregular.
What is an idle or irregular PPF account?
A PPF account can become irregular when a certain rule has not been followed pertaining to the account and the bank/post office takes cognisance of this violation. Owing to this violation, the bank/post office can close your account, return your contributions and stop your interest payments. Let’s find out what reasons can contribute to your PPF account becoming irregular/idle:
Opening multiple PPF accounts:
Who doesn’t love multiple income streams to one’s credit at the time of retirement? While having multiple PPF accounts in your name can fulfil that fantasy, you can only open a PPF account in either a bank or a post office, not both. In fact, the PPF application form even takes this into account through an undertaking-“I hereby declare that I am not maintaining any other Public Provident Fund Account, except an account on behalf of a minor.”
Unless you’ve signed your PPF application form in a haze, you would’ve noticed this too. In spite of this, if you’ve opened two accounts by mistake, your second account will be treated as an irregular account and will not bear any interest unless the two accounts are combined. The only way to combine both accounts is to approach the Ministry of Finance (Department of Economic Affairs). You can open a PPF account on behalf of a minor only if you’re either the mother or father of the child. However, both parents of the minor cannot open a separate account for the same minor.
Additional Reading: All You Need To Know About PPF Withdrawals, Loans And Pre-Closures
Annual contributions more than Rs. 1.5 lakh:
If contributions to your PPF account exceed Rs. 1.5 lakhs in a year, the deposits in excess of Rs. 1.5 lakh will be considered as irregular subscriptions. They will neither bear any interest nor will this excess amount be eligible for tax benefit under Section 80C of the Income Tax Act. This excess amount will be refunded by the bank or the post office to the bank account of the PPF account holder.
Annual contributions less than Rs. 500:
In order to activate and regularise the use of your PPF account, you will need to deposit a minimum of Rs. 500 in a year. If you fail to do so, your account will be considered an irregular account.
Contributions after maturity date:
A PPF account has a lock-in period of 15 years. You can, however, extend this multiple times by a block of five years. In order to continue making fresh deposits in your PPF account post the maturity date, you will need to submit an application to the bank or post office. The application can be made in writing by filling up the Form H. If you keep making deposits without furnishing this form, all new deposits would be treated as irregular and would also carry no interest. These fresh deposits will also not be eligible for tax deductions under Section 80C after your PPF account matures unless you opt for the continuance of the account.
Additional Reading: The Shocking Truth: PPF vs NSC – Which One’s The Better Bet?
How to revive an idle PPF account?
If you’re at sea about how to reactivate your idle PPF account, here are the steps that you’ll need to follow:
- Submit a written request at the post office or bank branch where you hold your account
- Pay the minimum yearly deposit amount of Rs. 500 for each year the account has been active
- Pay a fine for each year the account has been inactive
- Visit the branch of PPF account another time to complete the verification process
Your account will get activated once you complete these steps. Until your account is operational again, the deposits of the account will be blocked.
If you’re not sure about how much to contribute to your PPF account on a monthly or yearly basis, a PPF calculator can point you in the right direction. Not just this, you can also use these calculators to calculate the amount of tax-free income, income tax liability after investment etc. accruing from your PPF account.
Already have a PPF account and looking to invest in Mutual Funds instead? We can help!