What is PPF? Taxability of excess PF contribution above Rs. 2.5 Lakhs

What is a PPF account?

PPF Stands for “Public Provident Fund “.

It is an investment option which not only offers attractive interest rate but also a safe mode of long-term investment.

Who is eligible to invest in PPF?

Any Indian citizen can open PPF a/c.
One citizen can have only one PPF account.
The second a/c can be opened if it is in the name of a minor.
NRIs and HUFs are not eligible to open a PPF account.

Types of PF in India?

In India, there are three types of provident funds, namely –

General Provident Fund (GPF),

Employees’ Provident Fund (EPF) and

Public Provident Fund (PPF).

Parameters	General Provident Fund	Employees’ Provident Fund	Public Provident Fund
Eligibility	Government employees	Anyone working in an organisation with more than 20 employees	Any Indian citizen
Maturity	Until retirement	Age of 58 years	15 years from the date of account creation
Premature close	On suspension or resignation from government service	When the account holder is unemployed for 2 months or more	Allowed after completion of 5 years on a child’s education or medical reasons

How to open a PPF account?

With Whom PPF account can be opened?	Post office / Nationalised Bank / Private Banks
Documents required?	Duly filled application form + KYC (Identity Proof, Address Proof)

What is the interest rate on PPF?

PPF Account	Details
Current PPF interest rate	7.10% w.e.f. 1st January, 2021
Lock in period	15 years
Minimum Account	₹ 500
Tax on PPF interest	Nil, tax exempted

Various Forms in PPF

List of Forms	Nature of the Form
Form A	For opening a Public Provident Fund account
Form B	For making deposits in the PPF account and repaying the loans against the PPF account
Form C	For partial withdrawals from the PPF account
Form D	To apply for a loan against the PPF account
Form E	Adding a nominee for the PPF account
Form F	Changing the nomination for the PPF account
Form G	For the claiming of funds in a PPF account by a nominee or the legal heir
Form H	For extending the maturity of the PPF account (1 or 5 years)

Loan against PPF

You can get a loan from the third year and till the sixth year after opening the PPF account. The amount of loan is limited to 25% of the balance that stood in the PPF account of the person at the end of 2nd year or the year preceding the year in which loan has been applied.

A fresh loan is not allowed when a previous loan or interest is outstanding. Interest is charged at a rate of 1% if repaid within 36 months and at 6% on the outstanding loan after 36 months. The repayment may be made either in lump-sum or in Instalments.

Year	Amount Invested	Interest (assumed)
1	150000	10650
2	150000	10650
3	Loan required

Eligible amount for Loan = 3,21,300*25/100 = 80,325

PPF withdrawal

Type of Withdrawal	Time Period	On what grounds	How much?
On Maturity	After 15 years	Any	Full Amount
Partial Withdrawal	After 6 years	Any	50% of the balance
Premature Closure	After 5 years	Medical, Education	Full Amount

Tax benefits and PPF a/c

Investors get Tax benefits on PPF Investments U/s 80C.

It is EEE category Investment. Means its Investment, Return and Maturity is exempt

New Amendment:

The Finance Bill 2021 proposes to insert Proviso to Sections 10(11) and 10(12) – “providing that the provisions of these clauses shall not apply to the interest income accrued during the previous year in the account of the person to the extent it relates to the amount or the aggregate of amounts of the contribution made by the person exceeding Rs. 2, 50,000 in a previous year on or after the 1st day of April 2021 and computed in such manner as may be prescribed”.

The same can be easily understand by following example : -

Illustration -

Mr. Z’s total contribution (including voluntary provident fund) to Employee Provident Fund (EPF) is Rs 4,50,000 in the FY 2021-22. Assuming the rate of interest on EPF is 7.1% per annum; his tax liability will be calculated in the following manner:

Financial Year	Employee’s contribution in EPF in a year (Rs.)	Contribution liable for tax on interest (b- 2,50,000)	Interest on the excess contribution (C*7.1%)	TDS @ 10% under section 194 A (10% on d)	Balance taxable amount to be added in taxable salary (d-e)
(a)	(b)	(c)	(d)	(e)	(f)
2021-22	4,50,000	2,00,000	14,200	1420	12,780

It is worth noting that maximum investment limit in Public Provident Fund ( PPF) is Rs. 1.5 Lakh only .