Investors must be aware of the reasons that can render their PPF account ‘irregular’ to avoid financial losses, especially in the light of new guidelines issued in a circular last month that take effect on October 1, 2024.
The Public Provident Fund (PPF) is one of the most popular long-term savings schemes among low-risk appetite investors in India. The scheme offers tax benefits and a steady, risk-free return. However, recent guidelines from the Ministry of Finance have highlighted several scenarios where a PPF account can be deemed irregular. As per a circular issued on August 21, 2024, investors must be aware of these instances to avoid financial losses.
Here are the key scenarios where your PPF account can become irregular:
As per the PPF rules, an individual can only maintain one PPF account in their name. However, many investors may have opened multiple PPF accounts over the years, sometimes due to confusion or lack of knowledge.
If an investor holds more than one PPF account, the government’s recent guidelines require that all such accounts be consolidated. The investor must designate one account as the primary one, and balances in the secondary accounts will either be transferred to the primary account or refunded to the investor at zero interest from July 12, 2024, onwards.
It is important to note that only the primary account will continue to earn the regular PPF interest rate (currently 7.1 per cent). In contrast, any secondary accounts will be classified as ‘irregular’ and non-compliant.
While it is permissible to open a PPF account for a minor (children under 18 years of age), irregularities arise when multiple PPF accounts are opened for the same minor.
Under the PPF rules, an individual can open only one PPF account on behalf of a minor. If a guardian opens multiple accounts for the same child, the irregular account will earn only the Post Office Savings Account (POSA) interest rate (currently 4 per cent) rather than the prevailing PPF rate, until the child turns 18.
Once the child/minor becomes an adult, the irregular account, the account will start earning the prevailing PPF interest rate.
Moreover, the maturity period for such ‘irregular’ accounts will be re-calculated from when the minor turns 18. This means the typical 15-year PPF maturity period will be extended for these accounts based on the minor’s age.
A major irregularity arises when Non-Resident Indians (NRIs) hold PPF accounts without updating their residency status. According to PPF rules, an NRI cannot open a PPF account.
However, if they become an NRI after opening the account as a resident Indian, they can continue to contribute until the account matures.
However, recent guidelines emphasise that PPF accounts held by NRIs will earn zero interest from October 1, 2024, onwards. Until September 30, 2024, such accounts will only earn the POSA rate of 4 per cent. This rule impacts NRIs who haven’t disclosed their change in residency status. If they don’t regularise their accounts by this date, they will lose out on interest allowed under the special arrangement as announced in the latest guidelines.
One of the critical rules for maintaining a regular PPF account is adhering to the minimum and maximum annual deposit limits. A PPF account requires a minimum deposit of Rs 500 per year and allows a maximum deposit of Rs 1.5 lakh per financial year.
If the minimum deposit is not met in a given year, the account becomes inactive or irregular. To reactivate such an account, the investor must pay a penalty of Rs 50 for each year the account was inactive, along with a minimum deposit of Rs 500 for each of those years. Failure to make these payments keeps the account irregular, denying the investor interest for that period.
The official circular by the Department of Economic Affairs says, “It needs to be noted that the power to regularise irregular small savings accounts is vested with the Ministry of Finance. Therefore, all cases pertaining to irregular accounts should be forwarded to this division for regularisation by the Ministry of Finance.”
Therefore, If your PPF account has been classified as irregular due to any of the reasons above, it is possible to regularise it.
To begin with the process, you should visit the branch from where you operate your PPF account, whether it is a bank or a post office. Here, you must inquire about the process and forms required to regularise your account. Explain to the concerned authorities regarding your requests, this may include consolidating multiple accounts, reactivating inactive accounts by paying the required penalties, and updating your residency status if applicable.