Watch out! Don’t keep two PPF accounts: You can face a penalty, implications and what to do
The Public Provident Fund (PPF) remains the most popular fixed income investment primarily because of three reasons – The sovereign guarantee on the principal and interest earned, The returns being tax-free and lastly the investment made in PPF qualifies for section 80C tax benefit.
As a PPF account holder ensure that your account do not become irregular till its maturity after 15 years. While the rules governing the PPF are well-defined by the government, lack of online infrastructure and absence of any integration between the post office branches, especially in the past, could lead to certain irregularities.
One such irregularity may arise if one ends up holding more than one PPF account in self-name. While only one PPF account is allowed to be opened in one’s name, there could be a possibility that one ends up holding multiple PPF accounts. It does not matter whether you have one such account in a post office and another in a bank.
One person-one account
The application to be used while opening the PPF account gets a declaration from the account holder that no other PPF account is being held by the individual. However, remember that the rules allow the same individual to open another account in the name of a minor. Still, it does not allow to hold more than one PPF account in the self-name. As a parent, one can open in one minor child name while the other parent can open in second child name. Both parents cannot open in the name of the same child.
Second PPF account
Once you have realised that there are more than one account in your own name, steps need to be taken to remove this irregularity. The second account will anyhow become the irregular account and you will not get any interest on the balance lying in the second account until it is regularised. Closing the second account is not an option because as per the rules, the PPF account has to run till its maturity.
What’s the way out
You need to amalgamate both the accounts so that there is no loss on interest on the irregular account ( second account). For this, you need to approach the Department of Economic Affairs (DEA) of the Ministry of Finance by writing to the Under Secretary-NS Branch MOF (DEA), New Delhi-1. This communication with disclosing all the details of the two accounts may be routed to the DEA through the post office. In case, after amalgamation, the total contributions during the year crosses the limit of Rs 1.5 lakh, the excess amount will be refunded without interest.
What if the first account is discontinued
You do not have any option other than reviving it by paying penalty for each unpaid year, minimum of arrear contributions for unpaid years and the current year’s minimum subscription.
Compounding works the best over the long term and in PPF, a 15- year debt investment, it can go a long way in accumulating tax-free corpus for your future goals. No wonder, several people who had opened the account decades back are still extending it after maturity and reaping its benefits.