Public Provident Fund: Here’s how you can avoid penalties on your PPF account from a bank

The Public Provident Fund (PPF) is one of the most popular investment schemes. The government backs it and offers attractive interest rates along with tax benefits. However, maintaining a PPF account requires compliance with certain norms to avoid penalties. Below are some useful tips on how to avoid penalties on your PPF account.

First, to maintain the account and avoid penalties, making a minimum annual contribution of Rs 500 to your PPF account is mandatory. Failure to make this minimum contribution will result in your account being discontinued, and the bank will charge you a penalty once you decide to reactivate the account.

Adhil Shetty, CEO of BankBazaar.com, said, “You can start a PPF investment with an amount as low as Rs 500. Once the account is opened, you must keep it active by making a minimum annual deposit of Rs 500. Failure to do so will result in the PPF account being deactivated and discontinued. To reactivate the account, you must visit the bank branch where you hold the PPF account, pay a penalty of Rs 50 and make a minimum deposit of Rs 500 into your account.”

Secondly, invest before the fifth of every month. The interest on PPF is calculated on the minimum balance in your account from the fifth to the last day of the month. If you deposit after the fifth, you will lose out on the interest for that month, which, in a way, is a penalty.

Third, it is important to maintain the account’s tenure. The PPF scheme has tenure of 15 years, and premature closure can lead to penalties. However, in certain exceptional circumstances, the account can be closed prematurely, after at least five years, but will be subjected to a 1% reduction in interest.

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Fourth, avoid taking loans against your PPF. Although one of the benefits of a PPF account is the ability to borrow against it, it’s worth mentioning that these loans carry an interest rate, which may diminish the returns.

Fifth: "Just as there is a minimum annual deposit, a maximum limit also applies to PPF deposits. Do not exceed the annual limit of Rs 1.5 lakh in one financial year. If done so, the excess amount will not earn any interest and will not provide any tax benefits," says, Ajinkya Kulkarni, Co-Founder and CEO of Wint Wealth. 

You must know that a PPF investment offers several valuable advantages. It features a 15-year lock-in period, which makes it suitable for long-term financial goals, such as children’s education, marriage, or retirement planning. Investing in PPF can help foster the habit of regular saving. Moreover, the principal investment and the interest earned under PPF are tax-exempt under Section 80C of the Income Tax Act. Since PPF investments are not market-linked, the investment is low-risk and offers assured returns.

“If PPF is an investment which aligns with your financial goals, it is advisable to take steps to keep it active. With its various benefits, it can be a beneficial addition to your portfolio and help fulfil long-term goals,” said Shetty.