Here's how the new PPF rules will affect you

While the minimum investment and lock-in period stays at Rs 500 and 15 years, respectively, changes have been made regarding the number of deposits, pre-mature closure and the interest rate for the loan availed against it.

Read on to know about these changes and their potential impact.

No limit on the number of deposits

While earlier you could only make 12 deposits in your PPF account in a fiscal in multiples of Rs. 5, the new notification has withdrawn this cap. Now, you can make deposits in multiples of Rs 50 any number of times in a financial year. However, the maximum investment limit is still capped at Rs 1.5 lakh in a fiscal.

Withdrawing the cap on the number of deposits gives you the flexibility to maximise gains through PPF. For example, earlier in case you had made 12 deposits in your account and were yet to exhaust the maximum permissible amount of Rs 1.5 lakh, you couldn’t help but not invest. However, this is not the case now with the new rules in force.

Extra provision for premature closure of an account

Certain circumstances allow premature closure of PPF account after five years of its opening. These include treatment of life-threatening ailments affecting you, your spouse, dependent children or parents.

Also, you can prematurely close your account in case you need funds for the higher education of dependent children. However, to do so, you need to produce the supporting documents.

While these provisions still remain intact, the Government has added a new provision fulfilling which allows premature closure.

This is on account of the change of your residency status. Today, it’s quite common among Indians to live abroad due to work commitments and in such a case making regular contributions can become problematic.

On the production of a copy of passport and visa or I-T return, you can prematurely close the account.

However, note that this comes at a penalty where you’ll have to settle for 1 percent lower interest than the rate at which interest gets credited.

Reduced loan rates

To meet short-term liquidity needs, people often take loans against their PPF account(s). Earlier, you needed to pay an interest of 2 percent on such loans up to and above the prevailing PPF interest rate. However, now, this has been reduced to 1 percent.

So now if you borrow against your PPF account, you need to pay an interest rate of 8.9 percent (7.9 percent is the current PPF interest rate). The interest is levied from the first day of the month when you take a loan till the last day of the month when you pay the final instalment.

At a 1 percent interest rate, it is one of the cheapest loans that you can avail. Moreover, a reduced interest rate makes it easy to repay the loan without hiccups.

Also, if you have opened a PPF account with a post office, you can now deposit a post office savings account cheque of any amount in your account at any non-home post office branch.

While this should be within the maximum permissible investment limit of Rs 1.5 lakh, earlier this cheque amount couldn’t be above Rs 25,000.

Additionally, the flexibility to deposit the cheque in a non-home post office branch gives you the liberty to invest from anywhere you go in the country and save for your goals.
To sum up

These crucial changes are expected to add to PPF’s popularity and further increase its penetration among the masses as a prudent savings instrument.

(The author is Head, Personal Wealth Advisory, Edelweiss)

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