New Public Provident Fund rules: How they will impact you

For most risk-averse investors, small savings schemes are popular across the country. Though their interest rates have been falling since April 2016, popular schemes like Public Provident Fund (PPF) still remain the most sought after investment option to create a tax-free nest egg.

Merger of small savings schemes

In order to remove ambiguities due to multiple Acts and rules for small savings schemes, the Centre has proposed to merge the Government Savings Certificates Act, 1959 (which covers National Savings Certificates and Kisan Vikas Patra) and the Public Provident Fund (PPF) Act, 1968, with the Government Savings Banks (GSB) Act, 1873. “All existing protections have been retained while consolidating PPF Act under the proposed Government Savings Promotion Act. No existing benefits to depositors are proposed to be taken away through this process,” says the notification from the ministry of finance. While there were concerns that the government may take away the protection against the attachment of PPF account under any decree or order of any court in respect of any debt or liability incurred by the depositors, the notification has underlined that there is no proposal to withdraw the said provision and existing and future depositors will continue to enjoy protection from the attachment under the amended umbrella Act as well.

Early withdrawal from PPF a/c

Under the existing Act, PPF account can not be closed prematurely before completion of five financial years even if there is any urgent need for funds. The tenure of the account is for 15 years. However, under the proposed amendment, investors will be allowed to withdraw their money from PPF account in case of exigencies, such as medical emergencies or higher education needs. At present, one can withdraw money every year from seventh financial year from the year of opening the account.

Account for minors

In the existing Act, there is no clear provision regarding deposits by minors in small savings. Under the new Act, provisions will be made to promote a culture of savings among children. At present, a resident Indian can open a PPF account and the subscriber can even open another account in the name of minors, but the maximum investment limit will be Rs 1.5 lakh by adding balance in all accounts. Also, there are no clear provisions in all the three Acts for operation of accounts in the name of physically infirm and differently abled persons. The new Act will address these issues. Also, as per existing provisions of the Acts, if a depositor dies and nomination exists, the outstanding balances will be paid to nominee. However, Supreme Court in its judgement had stated that a nominee is merely empowered to collect the amounts as trustee for the benefit of legal heirs. “It was creating disputes between the provisions of the Acts and verdict of Supreme Court. Hence, rights of nominees have now been more clearly defined,” says the notification.

Ideal for building nest egg

At present, (January to March 2018) interest rate on PPF is 7.6%. Analysts say that despite the cut in rates, individuals should invest in PPF as it builds a tax-free retirement corpus. Deposits in PPF qualify for deduction from income under Section 80C, where the ceiling is Rs 1.5 lakh a year. Again, while the salaried class contributes to Employees’ Provident Fund (EPF), which gives higher returns than PPF, the self-employed do not have a similar recourse. Retirement fund EPFO lowered the rate of interest on EPF to 8.55% for its over 60 million subscribers for 2017-18, from 8.65% in the previous fiscal.