On 12th December, the Government of India notified the Public Provident Fund (PPF) Scheme, 2019 under Section 3A of the Government Saving Promotion Act, 1873 thereby replacing the the Public Provident Fund (PPF) Scheme, 1968. In it, the Government made a few schemes to the PPF Scheme, as follows:
1) Interest on Loan reduced: If you took a loan against your PPF Account, the PPF Scheme 1968 laid down an interest rate of 2% per annum above the prevailing PPF interest rate. Thus for example, if the PPF interest rate was 8%, your would have to pay an interest rate of 10%. PPF Scheme 2019 has reduced this rate to 1%. Hence if the PPF interest rate is 8%, you would have to pay a rate of 9% if you take a loan against PPF. In both cases, the interest is levied from the first day of the month in which the loan is taken to the last day of the month in which the last installment of the loan is paid.
2 ) Premature Closure
In 2016, the Government allowed premature closure of the PPF Account. In the PPF Scheme, 2019, premature closure is allowed after the completion of 5 financial years after the end of the year in which the account is opened, as was the case previously. However a special form, Form 5 has been created under PPF Scheme, 2019 for this purpose.
Earlier the Government had allowed premature closure of the PPF account on grounds of serious ailments or life threatening diseases affecting the account holder, spouse, dependent children or parents. This has been retained.
A second ground of premature closure allowed earlier was higher education of the account holder. This has been extended to higher education of the account holder or dependent children. However production of documents and fee bills in confirmation of admission in a recognized institute of higher education in India or abroad is mandatory.
The PPF Scheme, 2019 has introduced a third ground of premature closure, namely, a change in the residency status of account holder.
As was the case previously as well, premature closure means you get interest lower by one percent than the rate at which interest has been credited to the account.
"Increasing the grounds for premature closure may encourage short term thinking," said Nishith Baldevdas, founder, Shree Financial, a Chennai based financial advisory firm. "This can negate the long term compounding power of the PPF," he added.
3 ) Deposits: PPF Scheme 1968 allowed deposits to be made in multiples of 5. A maximum of 12 deposits were permitted in a period of 1 year. PPF Scheme 2019 allows deposits in multiples of ₹50. No upper limit on number of deposits has been specified. In other words you can make deposits to the PPF account as many times as you want, subject to the maximum limit. The requirement of minimum annual contribution of ₹500 and the maximum annual contribution of ₹1.5 lakh have been retained, as is.
4) Non Resident Indians: The PPF Scheme 1968 said that non resident Indians are not eligible to open a PPF account. However it also said that a resident, who subsequently becomes Non Resident Indian (NRI) during the maturity period may continue to subscribe to the PPF till its maturity. The PPF Scheme 2019 does not explicitly prohibit non residents from opening a PPF Account and it is also silent on the question of whether someone who becomes non resident subsequently can continue to contribute. However it requires a declaration that the individual is a resident of India in the account opening form (Form 1). It also lays down change of residency as a ground on which a PPF account can be terminated prematurely, after a period of 5 years from opening. “In view of the requirement in the account opening form, it can be concluded that the new PPF scheme is for residents only. Existing residents who become NRIs cannot make further contributions to the PPF account, but it is unclear whether they have to prematurely terminate the account," said Amol Joshi, founder, Plan Rupee Investment Services.
5 ) Form Changes:
Account Opening Form: Form A to Form 1
Contribution Form:Earlier Form B. None specified under new scheme.
Partial withdrawals:Form C to Form 2
Account closure after maturity: Form CtoForm 3
PPF Loan:Form D to Form 2
Extension Form:Form H to Form 4
Premature Closure: N/A to Form 5
Nomination: Form E to Form 1