All about PPF: Rules, Facts, and Implications of Having 2 PPF Accounts

Name it as Fixed Income Investment, Tax Saving Investment, or Long-Term Investment, The Public Provident Fund (PPF) is the most popular investment option in India. Many investors use PPF as a debt investment choice too, due to its rock-solid guarantee on the principal amount as well as to gain enticing tax benefits on the interest amount.

What is PPF? It’s Tax Implications and Benefits:

Public Provident Funds come with a 15-year lock period, and the Principal amount invested in PPF is certified for a tax benefit up to Rs. 1.5 lakhs/year under Section 80C.
All the returns and income accumulations from PPF are completely tax-free as per Section 10 of Income Tax. Even the amount which is withdrawn at the end of the maturity period (15 years) is tax-free.
In Income Tax, where all investments and interests on them are taxable, PPF investment is the only one that cheerfully yells “Exempt from tax”. Hence it falls under the category “Exempt and Exempt” of Income Tax.
The main benefit of PPF is that the interest accumulated and compounded in all these 15 years, which is an appropriate alternative for allotting the debt portion in an individual’s investment portfolio.

Few facts about PPF:

• Public Provident Fund is a 15-year investment scheme that can be extended in 5 yearly blocks. PPF can be opened online with designated banks, post offices, or other branches of banks.
• An individual can open a PPF account at any time, irrespective of their age.
• Deposits up to 12 times in a year are permitted, but it is advisable to deposit before the 5th of every month, to gain full month interest.
• The Government of India sets the interest rates on PPF returns, every quarter.
• Public Provident Fund account needs a minimum amount of Rs.500 for keeping the account active, and the fund can have a maximum deposit of Rs.1.5 lakh every year. Any excess amount deposited than the maximum limit (1.5 lakhs) will not be tax-free nor will it gain any interest. The excess amount will be refunded to the account holder without any interest.
• PPF account can be created in the name of the individual itself, or the name of a minor (with any parent holding the capacity of the guardian of the minor). Once the minor turns 18 years, he/she can operate their account, since the PPF account can never be opened in joint names.
• Grandparents cannot open the PPF account of their minor grandchildren when parents of their grandchildren are alive. They are only eligible to become guardians of their minor grandchildren when both the parents of the same have passed away.
• One individual is liable for opening only one PPF account, be it at the post office or any bank. They need to mention the same in the application form. One leverage about the PPF account is that transfer is viable. I.e. An individual can transfer their PPF account from bank to post office and vice-versa.

Now that you have a clarity on the facts surrounding Public Provident Fund, let’s check out some implications on what will happen in case of an individual opening 2 PPF accounts.

What Happens if a second PPF Account is Opened?

While opening a Public Provident Fund account, a declaration needs to be signed by the account holder stating that there are no other PPF accounts in his/her name. But sometimes errors do happen and a person ends up opening two PPF accounts.
As per PPF rules, an individual can open only one PPF account. If he/she opens another PPF account, they will not be entitled to any interest on the invested amount. It would be termed as an irregular account and needs to be closed immediately.

Treatment of second account:

As per PPF rules, a PPF account cannot be closed or terminated before the maturity date i.e.15 years.

• Both the accounts need to be merged to prevent loss of interest on the investment made in the second PPF account.
• The individual needs to file a PPF merger of accounts appeal to the Department of Economic Affairs (DEA) of the Ministry of Finance. They need to prove their innocence and unfeigned mistake for opening another PPF account The discretion of merging the 2 PPF accounts solely depends on the DEA of the Ministry of Finance.
• All the details of both the PPF accounts should be revealed to the DEA. This communication may be routed through your bank branch or post office branch. Once if the decision of amalgamation of accounts is positive, the maximum limit needs to be checked. In case the investment amount exceeds Rs.1,50,000, the same needs to be refunded to the account holder without interest.

Transfer of PPF account in case of Relocation:

If you are shifting to another location, the procedure to shift your PPF account is quite simple, hence you don’t need to worry. Just follow the below steps and the transfer process will be completed successfully.

• Don’t make the mistake of opening a new PPF account in a new bank branch, at the relocated place. Submit a transfer application to your current branch, and request them to transfer your PPF account to the bank branch in the new location.
• Ensure to keep your passbook updated before the transfer process. This helps in checking the last deposit amount as well as the last interest credited in your PPF account. In case of any pending interests, get the same rectified and processed, to avoid further transfer complications in the future.
• Once you submit your application, all the account and investment details are verified and on successful verification, the entire balance in your PPF account is transferred to the bank branch of your new location, as per your choice.
• Once the new bank branch gets your application, it commences the procedure for opening the PPF account.
• The procedure is quite similar to the opening of a bank account and here too, you need to submit all the essential documents and id proof like Aadhar card, etc. for KYC purpose.
• After the new account has opened, you can tally your PPF investment amount with your new passbook.