Five changes in the new PPF scheme you should know about

Government of India has recently notified the Public Provident Fund (PPF) Scheme, 2019 which replaces the erstwhile Public Provident Fund (PPF) Scheme, 1968. Broadly, there are five changes that have been made in different aspects of the PPF scheme. Here is what you need to know about the tweaks in PPF 2019.

Lower interest payable on loan against PPF

In line with the falling rates of interest, the PPF 2019 reduces the loan interest spread over the interest paid on PPF. Under the erstwhile PPF scheme 1968, an interest rate of 2% per annum above the prevailing PPF interest rate was payable in case the investor took a loan against the PPF balance. For example, if the PPF interest rate is 7.9%, then the loan against PPF will entail an interest payable at the rate of 9.9%. In the new PPF scheme 2019, this interest spread has been reduced from 2% to 1%. Effectively, in the above instance considered, your interest payable on the loan against PPF will not be 9.9% but 8.9%. This will be beneficial to PPF investors as the cost of taking loans comes down substantially.

Changes in case of premature closure of PPF account

Premature closure of the PPF Account after 5 years was already permitted in 2016 and that has been retained. However, what changed are the conditions under which the said PPF account can be closed prematurely. A special form, Form 5 has been created under PPF Scheme, 2019 for this purpose. It may be recollected that since 2016, the premature closure of PPF was allowed on grounds of serious ailments or life threatening diseases affecting the account holder, spouse, dependent children or parents. In addition, the PPF Scheme 2019 has added higher education of the PPF account holder or his/her dependent children. In these cases,  however production of documents and fee bills in confirmation of admission in a recognised institute of higher education in India or abroad is mandatory. In addition, the PPF Scheme 2019 also permits premature closure of the PPF scheme after completion of 5 years in the event of the change in the residency status of account holder. The clause that reduces the interest rate on premature withdrawal by 1% will continue.

Denominations of deposits in PPF

To make the PPF scheme administratively simpler, it will permit deposits only in multiples of Rs.50. It may be recollected that the PPF Scheme 1968 allowed deposits in multiples of Rs.5 also. There will be no upper limit on the number of deposits that can be made in the PPF account. However, the erstwhile limits of minimum annual contribution of Rs.500 and maximum annual contribution of Rs.150,000 have been retained. This is a very minor change to the PPF scheme and is more to bring about administrative simplicity so that the department does not have to deal with too many small denomination deposits in the PPF account.

Ambiguity in the matter of NRIs

We really cannot say that this is a change, but the new scheme surely brings about a degree of ambiguity on the NRI front. While the PPF Scheme 1968 explicitly prohibited NRIs from investing in PPF accounts, the PPF Scheme 2019 is largely silent on the subject. While  the PPF Scheme 2019 does not explicitly prohibit NRIs from opening a PPF Account the new application form requires a declaration that the individual is a resident of India. This can lead us to assume that logically the NRIs are prohibited from investing in PPF under the New PPF 2019 too. Apart from the investment by NRIs, there is also ambiguity about whether residents who become NRIs can continue with their PPF scheme.

Under the PPF Scheme 1968, a resident Indian who subsequently became a NRI during the tenure of the PPF could continue to subscribe to the PPF till its maturity. However, the PPF Scheme 2019 is silent on this subject. But it does put down that change of residency is a ground on which PPF account can be terminated prematurely after 5 years. This can lead us to logically conclude that such schemes cannot be continued in the event of the resident becoming a NRI during the tenure of the PPF.

Finally, some routine changes in forms

At a procedural level, there have been some changes as under:

• Account Opening shifted from Form A to Form 1

• Partial Withdrawal shifted from Form C to Form 2

• Account closure after maturity shifted from Form C to Form 3

• PPF Loan shifted from Form D to Form 2

• PPF Extension shifted from Form H to Form 4

• Premature Closure vide New Form 5

• Nomination: Form E to Form 1

Nomination form has been combined with account opening form while the partial withdrawal form has been combined with the loan form.