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If you don't make the necessary adjustments after October 1, 2024, you'll stop earning interest on accounts that aren't in compliance rediffGURU Milind Vadjikar tells Rediff.com
From October 1, 2024, some important changes are coming to Public Provident Fund (PPF) accounts. These changes aim to simplify account management and deal with issues related to multiple accounts and irregularities. Here are answers to some of the most frequently asked questions about what's new.
1. What's changing for PPF accounts opened for minors?
If you've opened more than one PPF account for your child, than only one account will be considered as regular subject to yearly minimum deposit requirement and other criteria.
All other irregular accounts in the name of your minor child will now earn interest at a lower rate -- the same as a Post Office Savings Account (POSA), which is currently 4 per cent.
2. What if I have multiple PPF accounts?
If you've accidentally opened more than one PPF account, you'll only earn interest on your primary account after October 1, 2024. The additional PPF accounts won't earn interest.
There's a silver lining if the extra account was opened before December 12, 2019: you can request to merge it with your main account.
However, if the second account was opened after that date, it can't be merged, and it will stop earning interest altogether.
In this case, it's best to focus on maintaining your primary account.
If you do decide to merge accounts, only the balance within the annual Rs 1.5 lakh limit will earn interest.
Any excess balance will be refunded, but without interest; so make sure you're aware of this before merging the two accounts.
3. Can NRIs continue to maintain their PPF accounts?
Non-Resident Indians (NRIs) can't open new PPF accounts. However, if you opened a PPF account while you were a resident and later became an NRI, you can keep the account open.
For only those NRI PPF accounts where Form H did not explicitly ask about residency status will earn interest rate at 4% up to September 30, 2024 and from October 1, 2024, NRIs' PPF accounts will no longer earn any interest.
Also, NRIs will no longer be able to extend their PPF accounts after the 15-year maturity period.
So if your PPF is about to mature, you may want to weigh the benefits of continuing to maintain it, knowing that it won't be generating returns.
4. How will interest be calculated if I merge two PPF accounts?
When you merge two PPF accounts, interest will only be calculated up to the annual contribution limit of Rs 1.5 lakh.
Let's say you have Rs 1 lakh in your primary account and Rs 70,000 in your secondary account.
In this case, Rs 50,000 from the secondary account will earn interest, but the extra Rs 20,000 won't. It's important to know that only the portion within the contribution limit (Rs 150,000 per annum) will qualify for interest.
5. What should I do if my PPF account isn't regular?
If your PPF account doesn't comply with the new rules -- for example, if you have more than one account or if you haven't updated your residency status -- you need to regularise it by October 1, 2024.
If you don't, you risk losing the interest on any irregular accounts. The best course of action is to merge any secondary accounts or close unnecessary ones to stay on the right side of these new regulations.
6. Are there any changes to the PPF interest rate itself?
No, the changes coming on October 1 don't affect the PPF interest rate directly. The government reviews the PPF interest rate every quarter, and it can change depending on broader economic factors.
Right now, the PPF interest rate is 7.1 per cent, but it's worth keeping an eye on future updates.
7. What should I do if I want to regularise my account?
If you find yourself holding multiple PPF accounts or if your residency status has changed and hasn't been updated, it's important to act before the October 1 deadline.
The best way to regularise your account is by merging secondary accounts with your primary one, assuming they were opened before December 12, 2019.
If you are an NRI, it's time to evaluate whether keeping your PPF account open is still beneficial, given that it won't earn any interest anymore.
8. Can I extend my PPF account once it matures?
Yes, for Indian residents, you can still extend your PPF account for a block of 5 years after the initial 15-year maturity period. Unfortunately, this option will no longer be available for NRIs. For those eligible to extend, you can continue making contributions and earning interest, ensuring that your savings grow and compound over time.
9. What happens if I don't comply with these new rules?
If you don't make the necessary adjustments -- like merging accounts or updating your status -- after October 1, 2024, you'll stop earning interest on accounts that aren't in compliance.
The government introduced these changes to prevent any irregular use of PPF accounts and to make sure the system works as intended for genuine account holders.
10. Why were these changes made?
These changes are designed to clean up irregularities and ensure that the PPF system works more smoothly.
By limiting account holders to one account, the government hopes to prevent abuses of the system, such as people holding multiple accounts to maximise interest. These updates also ensure that NRIs don't continue earning interest on PPF accounts after leaving India for good.
As told to Prasanna D Zore/Rediff.com
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