AIR spotlight summary on “Government Proposal on PPF Accounts”.
Introduction
- The finance ministry has announced major changes in the Public Provident Fund Account laws. In order to remove existing ambiguities due to multiple Acts and rules for Small Saving Schemes and further strengthen the objective of “Minimum Government, Maximum Governance”, Government has proposed merger of Government Savings Certificates Act, 1959 and Public Provident Fund Act, 1968 with the Government Savings Banks Act, 1873 without compromising on any of the functional provision of the existing Act.
- Small savings schemes include post office savings account, national savings monthly income (Account), national savings recurring deposit, PPF and Sukanya Samriddhi Account.
Provisions
- The government proposes to allow premature withdrawal of public provident fund (PPF) accounts. The ability to prematurely close PPF accounts is subject to conditions of medical emergency, higher educational need, marriage, house construction etc. Earlier it was mandated to continue with the scheme for 5 years.
- Provisions for physically infirm and differently abled persons have now been made.
- No change in interest rate or tax policy on small savings scheme is being made through this amendment. Apart from offering higher interest rates compared to bank deposits, some of the small savings schemes also enjoy income tax benefits.
Implications
- It indicates greater flexibility in the operations of Small Saving Schemes and it will be easier for the depositors as they need not go through different rules and acts to understand the provisions of Small Savings Schemes and also to introduce certain flexibilities for the investors.
- The government wants to remove redundant laws, polices and agencies. Now there will be convenience, flexibility and suitable for the present time. The government is trying to strike a balance of convenience for administration, reduce litigation and change according to the present need. In the interest of simplification and modernisation such changes are necessary and welcome.
- After Japan, India has the highest savings rate in the world. The savings habit of the Indians should be encouraged. Now children can open account, can nominate someone and parents can put money in children’s account. This shows that the government is keen to encourage the habit of saving.
Advantages
- The PPF will be administered fully by the government which gives an edge to the PPF where as the Public Sector Banks are not fully owned by the government. It is easier for a person to access post office than a bank in rural areas.
- These kind of government savings schemes provide people safe and secure avenue to invest money with assured return. It encourages saving habit, provide safety net and benefit for retirement.
Concerns / Challenges
- To close a PPF account prematurely, a written application needs to be submitted to the accounts office where the account is held. The application should contain a copy of the PPF passbook. It should also be supported by documents from a competent medical authority if the purpose cited is medical treatment. If the purpose is supporting higher education, documents such as fee receipts, bills and confirmation of admission should be provided.
- Asking for permission from the chief of post office to withdraw money and trying to prove the illness and need for money is burdensome for the applicant and for the administrator also, which should be done away and make it simpler.
Way Forward
- The investment provision is minimum of Rs 500 per month and maximum is Rs 1,50,000 a year. The government must increase the upper limit considering that incomes have gone up and higher income individuals may also invest in it.
