The Most Authentic Guide on Personal Finance and Investments


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Zero Interest PPF Accounts

PPF (Public Provident Fund) is one of the most popular investment options among Indians.

And rightly so too:

You can't really ask for a better investment than this.

- It gives you high interest income, comparable (and even superior) to other similar investments.
- The interest rate, announced every year, is the guaranteed returns.
- Moreover, unlike most of the other investments, this interest income is 100% Tax Free.
- Besides, you also get tax breaks on your investments every year.
- And, last but not the least, with Govt. of India backing, PPF is a 100% Safe investment.

But, did you know that even PPF can sometimes pay ZERO interest?

In other words, the money invested by you would be returned to you... as it is... without any interest being paid on the same.

Why?

PPF is an excellent investment, with multiple benefits. Therefore, people often open multiple accounts.

a) One account in one's own name to avail of the Sec 80C tax benefit. This enables you to slash your tax liability. You are allowed to reduce your total taxable income, to the extent of investment made in PPF, during the particular Financial Year. Thus, you pay lower tax.

b) Second account in the wife's name, particularly when she is a housewife, so as to earn tax free income. (Even though you have to apply the Income Tax provisions on Clubbing of Income, you are not affected as the interest income from PPF is tax free.)

c) Third / Fourth accounts in the name of children, to accumulate a safe and sizeable corpus for their higher education 12-15 years later.


ppf-accounts-not-eligible-for-interest
Do you own PPF accounts that are NOT ELIGIBLE for any interest?

To maximize these benefits from PPF investment, they deposit the maximum permissible amount (which currently is Rs.1.50 lakhs per financial year), in each of these accounts.

For example, it has been often seen that people have 3-4 PPF accounts and they routinely deposit the maximum permissible amount in each of these accounts. Accordingly, given the cap of Rs.1.50 lakhs, people are now investing a total of Rs.4.50 to 6.00 lakhs per year.

And, this is where the trouble starts:

The cap on YOUR investment in PPF accounts, in a particular financial year, applies to ALL THE ACCOUNTS PUT TOGETHER... and NOT to each individual account.

As such, any amount invested that is over and above the cap, will not be eligible for any interest income.

As and when the bank or the post office concerned becomes aware of your multiple accounts, it would stop paying interest on the excess portion of your total investment in PPF. Further, it would also reverse all the interest credited in the past. This could happen even after years. So you will lose the entire interest for all the years.

Earlier, the record-keeping used to be paper-based. So, some people did get away with this violation. However, in recent times, banks, post offices and income tax records have all been computerized. Thus, it is now going to be very difficult for anyone to avoid detection of investments exceeding the prescribed cap.

WAIT...

This is not the end of the story.

It has also been observed that many Non Resident Indians (NRIs) open new PPF accounts, without disclosing the fact that they are NRIs to banks / post offices.

As per PPF rules and regulations, NRIs are not permitted to open new PPF accounts. They can, at best, continue investing in their earlier PPF accounts (opened prior to becoming NRIs) till the maturity
UPDATE : As per the notification issued by the Govt. of India (Notification No. GSR 1237(E) dated 3rd October 2017, all existing PPF and NSC accounts — of the people who become Non Resident Indians — will be closed / encashed from the day they become an NRI. For more details read NRIs With Investments In PPF And NSC Must Act ASAP.

As such, even these PPF accounts, opened subsequent to becoming NRIs, will not be paid any interest.

Do you also own such PPF accounts, that are not eligible for any interest payment?

Also read : 7 Lesser Known Facts About PPF

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