What is the new interest rate for PPF? Have other norms been changed as well?
The interest rate on Public Provident Fund (PPF) has now been reduced to 8.1 percent against 8.7 percent per annum (compounded yearly). All the other norms remain the same including the tax advantage and withdrawal permissible from 7th financial year from the year of opening account.
Could you please explain what do you mean by compounded yearly? with example.
Compound interest is where interest is calculated on the principal as well as interest accumulations. In case of annual compounding, interest will be calculated once a year, for semi-annual it will be twice a year. Suppose you make a single deposit of Rs. 10,000 that will earn interest at 8% per year. The interest will be deposited at the end of one year. The formula is FV = PV x (1.00 + i)n. FV is the Future Value, PV is the Present Value, i is the interest rate and n is the period for which the compounding is done. Since the interest is compounded annually, the formula will be FV = 10,000 x (1.00 + 0.08)1. You will get Rs. 10,800. For semi-annual compounding, n will be 2.
As of December 2017, the interest rate for PPF is 7.8%. In the recent past, the Government approved the premature closure of PPF accounts which was not possible earlier. However, there are certain terms and conditions. One is that you need to hold the PPF for at least five financial years before you choose to close it. Another is that the premature closure will be allowed only under certain circumstances. These circumstances include higher education expenses and medical treatment. Expenses for medical treatment need to be for life threatening diseases or serious ailments in case of self, spouse or dependent children. You also need to provide supporting documents that are signed by a registered medical practitioner. In case of higher education expenses, you need to produce the bills for the fees paid. The education institution can be in India or abroad.
Earlier NRIs were not allowed to open a PPF account. But, a resident Indian who turns an NRI during the tenure of the account could continue to avail its benefits till maturity. But the NRI cannot extend the account for a block of five years. According to new notifications by the government “if a resident who opened an account under this scheme subsequently becomes a non-resident during the currency of the maturity period, the account shall be deemed to be closed with effect from the day he becomes a non-resident.” In short, as per the new amendment rule, NRIs cannot avail the benefits of PPF till maturity. The account will be closed as soon as his status changes from resident Indian to NRI.
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