Mukesh Patel.in
practical tax & investment planning online
international tax expert / columnist / author / speaker

PLAN PPF FOR PERPETUITY !

After its initial tenure of 15 years, a PPF account can be renewed indefinitely in blocks of 5 years!

Today ‘Tax Clues’ deals with some interesting readers’ queries on Public Provident Fund (PPF).

Query: I understand that a PPF account is initially opened for a period of 15 years and it can be renewed in blocks of 5 years each. How many times can one renew such blocks of 5 years? Some people say only twice, some say indefinitely. What is the correct position? Whether it is advisable for an investor to close his PPF account after 15 years and open a fresh account or keep on renewing the same in such blocks of 5 years?

Reply: As per Rule 9(3) of the PPF Scheme, a PPF account is required to be initially maintained for a period of 15 years from the end of the year in which the initial subscription is made. The subscriber can then choose to close his account at the expiry of 15 years and withdraw the entire balance standing to his credit.

However, Rule 9(3A) provides that on the expiry of the 15 years period, the subscriber can exercise the option of continuing the PPF account for a further block period of 5 years. Rule 9(3B) further provides that in such a case, the subscriber shall be eligible to make one withdrawal every year, subject to the condition that the total of the withdrawals during the 5 year block shall not exceed 60% of the balance at the commencement of the block period.

The note to Rule 9(3B) clearly states that a subscriber may at his option (to be exercised before the expiry of the first year of every extended block period) avail of this facility for a further block of 5 years on expiry of 20 years or on expiry of 25 years and so on, from the end of the year in which initial subscription was made. The words ‘and so on’ make it quite clear, that a PPF account can be renewed indefinitely in blocks of 5 years, subject of course to the condition for withdrawals as explained hereinabove.

It would be advantageous for a subscriber to keep on renewing his account every 5 years, rather than closing the initial account and opening a new account, because in case of the new account, the same would have to be continued for the minimum subscription period of 15 years.

PPF CONTRIBUTION OUT OF LOAN OR GIFT

Query: I was in the Government and have now left service.  I had opened PPF account in the names of my son and daughter and used to claim the benefit of the amounts deposited by me in their accounts for Income-tax purposes.  Since I have left active service, I am finding it difficult to regularly deposit money in the PPF accounts, but at the same time I do not wish to discontinue them.  Can my father who is a pensioner, deposit amounts in the PPF accounts of my son and daughter, firstly for the reason of continuing them and secondly for purposes of claiming the benefit of Income-tax deduction under Section 80C in his case, subject to the limitation of Rs.1,00,000 in both the accounts.  The deduction for the above amount deposited will not be claimed by me.

I would like to further know how I can avail the benefit of deduction, if my father is not able to claim the same.  Is there a condition that the PPF contributions have to be from the exclusive income of the depositor only?

Reply: You should note the following points, which will usefully guide you in taking an appropriate decision on the facts of your case:

  • The benefit of Income-tax deduction under Section 80C is available to an individual not only in respect of the contributions made by him to his own PPF account, but also to the accounts of either his spouse or his child (minor or major).

  • The earlier condition that the contribution should be made only from ‘income chargeable to tax’ has been done away with and hence such contributions can be made by an individual even from any amount of gift or a loan received by him.

In the light of the above, your father would obviously not be able to claim the benefit of Income-tax deduction in his case, in respect of any contributions made by him to the PPF accounts of your children(since they would not be his children but his grand children).  However, your father can claim the benefit of tax deduction by contributing to your PPF account.

Alternatively, your father may finance you the amount of Rs.1,00,000 either by way of a loan or gift, which you may utilize for contributing to the PPF accounts of your son and daughter.

Leave a Reply

You must be logged in to post a comment.

Powered by Epaperz.com | Hosted at HostADomainNow.com