New PPF scheme 2019 notified with some amendments

The Government of India has notified the Public Provident Fund (PPF) Scheme, 2019 under Section 3A of the Government Saving Promotion Act, 1873 on the 12th of December 2019. The older scheme of the year 1968 was replaced with some amendments.

Let’s look at the tweaks and understand its applicability on the individuals who have invested in the PPF scheme:

1. Interest on loan cut: PPF scheme 1968 stated that interest of 2% per annum above the current PPF interest rate would be chargeable if the loan is taken against the PPF account. For instance, if the PPF interest rate is 6%, the borrower will have to pay 8% interest on the loan. However, the new scheme has reduced the interest to 1% per annum. In both the scenarios, the interest will be levied from the first day of the month (when the loan was taken) to the last day of the month (when the last instalment of the loan was paid).
2. Early account closure: Like the older scheme, the PPF scheme 2019 also allows premature closure of the PPF account after the completion of five years. However, Form 5 has been especially notified for this purpose under the new scheme. One of the grounds of premature closure of the PPF account is the higher education of the account holder. The same has been extended to higher education of the account holder or the dependent children. New ground for premature closure has been inserted by the PPF scheme 2019, namely, change in the residential status of the account holder.
3. Deposit: Under the PPF scheme 1968, the deposits were allowed in the multiples of Rs 5 till a maximum of 12 deposits in a particular financial year. But, the new scheme allows the deposits in multiples of Rs 50, and no upper limit for the number of deposits has been specified.
4. Non-resident Indians (NRIs): The new PPF scheme does not prohibit non-residents from opening a PPF account unlike the PPF scheme 1968. Also, the new scheme does not clarify whether a person who becomes an NRI can continue to contribute or not. However, now, a declaration that the individual is a resident of India is required in Form 1 (account opening form). Along with this, it also puts down the change of residency as a new ground on which a PPF account can be terminated prematurely, after five years from opening.
5. Changes to forms:
   • Account opening form: Form A to Form 1

• • Contribution form: Earlier Form B. No form notified under the new scheme.

• • Partial withdrawals: Form C to Form 2

• • Account closure after maturity: Form C to Form 3

• • PPF loan: Form D to Form 2

• • Extension form: Form H to Form 4

• • Premature closure: N/A to Form 5

• • Nomination: Form E to Form 1

For any clarifications/feedback on the topic, please contact the writer at komal.chawla@cleartax.in