PF| New PPF rules

FCA surbhi jain | Last updated: 26 April 2020

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The Indian government has introduced new rules and relaxations for the Public Provident Fund (PPF) scheme, alongside other small savings schemes, due to the COVID-19 pandemic. Key changes include an extended deadline of June 30, 2020, for making mandated deposits for the 2019-20 financial year without penalty. The interest rate on loans against PPF has also been reduced. Despite a cut in the overall interest rate, PPF remains an attractive long-term investment option compared to bank rates.

The coronavirus (COVID-19) pandemic has impacted the whole trade and business world. The government of India has announced a sharp cut in the interest rate offered for small saving schemes for the quarter of April to June of the FY 2020-21.

Due to lockdown, the government has relaxed a few rules on PPF and small saving schemes like 5-year National saving certificate, Kisan Vikas Patra, Sukanya Samridhi Yojana, etc.

This article focus on one of the most popular small saving schemes - Public Provident Fund.

New PPF Rules: Relaxations and Key Changes Explained

Few things you need to know about new PPF rules:

1) PPF still remains an attractive option for long term investment when bank interest rates are falling largely. PPF still fetches 7.1% interest rate as compared to earlier interest rate of 7.9%.

2) Non -deposit of mandated minimum deposit amount in PPF for the year 2019-20 will not attract any penalty if payment is made till 30 June 2020. This will also be applicable for other small saving schemes.

The Department of Posts said, "The subscribers of RD A/c /SSA/PPF A/c may deposit the mandated due amount, if any of current FY(2019-20) and April, 2020 (as the case may be) in their respective accounts till 30th June, 2020 and no penalty /revival fee shall be charged".

3) It is also stated that, if a PPF account holder fails to deposit a minimum amount of Rs. 500 in any financial Year ,the account will be treated as discontinued. It can be revived on payment of a fee of Rs.50 along with arrears of minimum deposit of five hundred rupees for each year of default.

4) For these deposits made till June 30, march 31,2020 will be considered for calculating interest or for payment of interest.

5) Now an PPF account holder can make deposits in multiples of Rs.50 ,any number of times in a financial Year with a maximum deposit of Rs. 1.5lakh a year. Previously, a maximum of 12 deposits were allowed in a period of one year in PPF account.

6) The government had reduced the interest rate charged on loan taken against PPF balance to 1% as compared to interest rate of 2% earlier.

7)The government has also extended date for making various investments and payments for claiming deduction for year 2019-2020 to June 30,2020 . This includes investments in section 80C,80D and 80G. Thus, investment in under these sections can be made upto 30june,2020 to claim deductions for FY 2019-2020.

Conclusion: PPF still remains to be attractive option for making long term saving investment, inspite of decrease of 80 -basis-point cut in interest rate , which is far more high than interest rate offered by banks on long saving investments.

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FAQ :

The deadline for making mandated deposits for the 2019-20 financial year has been extended to June 30, 2020. These deposits will not attract any penalty.

Yes, the interest rate for the April to June quarter of FY 2020-21 has been reduced. The PPF still fetches 7.1% interest, down from the earlier 7.9%.

If you fail to deposit the minimum amount of Rs. 500 in any financial year, your PPF account will be treated as discontinued. It can be revived by paying a Rs. 50 fee along with the arrears of the minimum deposit for each year of default.

You can now make deposits in multiples of Rs. 50, any number of times in a financial year, up to a maximum of Rs. 1.5 lakh annually. Previously, a maximum of 12 deposits were allowed per year.

Yes, the government has reduced the interest rate on loans taken against PPF balance to 1%, down from the previous rate of 2%.