The Public Provident Fund is the most popular investment option for masses in India. The EEE tax benefits and the government backed safety offered by PPF make it the most preferred debt investment plan.
Before you choose to invest in PPF, it is inevitable to go through certain guidelines pertaining to it. If those are not adhered to, the account may be considered as ‘irregular’ by the government. As a result it is quite likely that the account gets closed and both the contributions and the interest are seized. Once marked as irregular, it will take a while before it is reactivated again.
What happens when a PPF account becomes irregular?
Failure to contribute towards your PPF account for any financial year makes it dormant and it is subject to a penalty. A minimum amount of Rs.500 must be deposited to keep it active. The account shall not be available for any further contributions and many other benefits will be lost like:
- Non contribution leads to non availability of tax benefits u/s80C.
- The right to premature closure of the account after five years on fulfilment of certain conditions gets waived. In such a case the accumulated sum can be withdrawn only at maturity i.e; 15 years.
- Partial withdrawal option after seven years shall no longer be available.
- Entitlement to a loan of 25% of the balance amount from the third to the sixth financial year after opening the account shall be lost.
In order to avoid such anomalies,it is important to understand what makes a PPF account irregular or dormant-
- Account opening rule:
Only one account can be opened under a single name. If a person opens an account in a bank, another account cannot be opened in a post office or vice a versa. If another account is opened, the second account will be termed as an irregular one and it shall not yield any interest income unless and until the two accounts are merged. When an account is opened in the name of a minor, either of the parents is allowed to open it.
- Maximum Contribution: Where the contributions towards PPF exceed the standard limit of Rs.1.5 lakh in a year, the account shall become irregular and it will not earn any interest. Moreover the tax gain u/s 80C shall be unavailable. In such cases the post office returns the excess amount thus contributed to the account holder.
- Rule for extension of the account: An account holder has to consult the post office for extending the term of the PPF account beyond 15 years. There is a form which requires to be filled in and submitted to the post office a year prior to the expiry of the account by the account holder. Contributions made after 15 years to an account without notifying the post office shall not be eligible for any claims u/s 80C and no interest will be earned on such contributions.
- Joint account rule: PPF rules do not allow any joint accounts. One can however make nominations while opening an account.
- Closing it prematurely:PPF accounts can be closed after five years of opening of the account subject to specific conditions like-for the treatment of serious diseases of the account holder, his or her-spouse, children or parents.
In case of the holder’s death the account gets closed and the nominee or legal heir can not make any further contributions to it. The calculation of interest will be made upto the end of the preceding month of the account holder’s demise.
What should be done to reactivate an irregular or dormant account?
- A written request should be submitted to the branch of the bank or post office where you have the account.
- Rs.50 is charged by way of a penalty for all the years of default.This is necessary to reactivate the account.
- Deposit a minimum sum of Rs.500 for each of the years the account remained dormant.
Bhoi Smrutirekha Dharanidhar