Public provident fund (PPF) is an important long-term savings scheme. Its key advantages include safety of capital invested and good rate of return in respect of interest. Further, annual contributions up to Rs 70,000 made under a PPF account are eligible for tax deduction u/s 80C of the Income-Tax Act, 1961 (the Act), and the interest income earned/accumulated in the PPF account is also exempt from tax.

These features have made PPF one of the most popular savings schemes for the common man, especially non-salaried individuals and people working in unorganised sector who do not have access to the regular provident fund schemes. Deposits under PPF can be made for a period of 15 years and thereafter extended for a time period of 5 years each time. Thus, PFF offers a good avenue for individuals to save for their long-term financial requirements, including retirement. As per a recent circular issued by the government, following clarifications are worth noting.

DEPOSIT DATE IN CHEQUE PAYMENTS

Till recently, in case of a PPF when a subscriber used to make deposits by local cheque or demand draft, the date of tender of cheque or draft at the accounting office was treated as the date of deposit of PPF, provided the said cheque was duly honoured on presentation for encashment. In contrast, in case of other small savings schemes like Post Office Savings Scheme (POSS), Senior Citizen Savings Scheme 2004 (SCSS) any money deposited in these accounts by means of a cheque, the date of encashment of the cheque is treated as the date of deposit.

Thus, in order to remove inconsistency between PPF and other small savings schemes and to bring in uniformity in the reckoning of the date of deposit of all the schemes, the government has issued necessary instructions through the circular to banks / other intermediaries which hold PPF accounts for the individuals to treat the date of realisation of the cheque or demand draft by the subscriber as the date of deposit.

This issue becomes particularly relevant in respect of deposits made towards the end of the financial year by cheque / demand draft because if the same is not realised by March 31, then the same will be treated as deposits for the following financial year. This would also have ramifications in respect of the tax deduction being claimed by the individuals in a particular tax year.

OPENING AN ACCOUNT FOR A MINOR

There have been certain practical hurdles in respect of opening of accounts for minor vis-à-vis some intermediary agencies. This clarification reiterates that as per the rules under PPF scheme, an individual may on his own behalf or on behalf of a minor of whom he is a guardian, open a PPF account. Further, either father or mother can open PPF account on behalf of his / her minor child, but both cannot open the account for same child.

CAUTION POINT

As of now, PPF falls under the Exempt, Exempt, Exempt (EEE) regime. Under the proposed Direct Tax Code (DTC), all small savings schemes, including PPF, are proposed to be under EET regime, which effectively means that the withdrawals from the scheme may be taxable once the DTC is implemented. The silver lining over here is that it is likely that deposits made and the interest accumulated in the account till the date of implementation of DTC may continue to be exempt and only subsequent contributions and the interest account may be subject to tax. The revised draft of DTC is awaited which would throw more light and clarify taxability of PPF scheme on a go-forward basis.

Source : http://epaper.timesofindia.com/