Oct 292015

Activating Dormant PPF Account – A Detailed Guide

PPF or Public Provident Fund was launched by Finance Ministry’s National Savings Institute back in 1968. Its purpose is to provide its subscribers with a financial instrument where they can not only save money but also evade taxes. It is designed for long-term investment and is often looked upon as a financial tool that allows people to save for their post-retirement days.

Activating Dormant PPF Account

While PPF offers a host of interesting benefits, it also comes with a host of restrictions, violation of which calls for penalty. For PPF to work, there has to be a PPF account in which people can deposit their money. This account needs to be maintained properly with deposits so that it does not become dormant.

Difference between dormant and inactive account

We don’t know whether you are aware of the fact that an account being dormant is actually different from an account being inactive, at least in banking parlance. A dormant account is one in which there has been no financial activity for at least 2 years whereas, an inactive account is one in which there has been no financial activity for 12 months.

Reactivating an inactive account is easy. All you have to do is to carry out a transaction like depositing some money and voila! Your account will be active. Reactivating a dormant account on the other hand is slightly difficult. In case of a dormant account, you will have to provide a request to the bank in a written format. Not just that, you will have to pay all the previous arrears and a penalty fee. The account will then be reactivated.

What are features of PPF account?

Here is a quick list of the features of a PPF account:

  • A PPF account can be with a bank or a with a post office.
  • PPF account sets a minimum floor to the amount of deposit allowed in a given fiscal year. This is INR 500. This means that no less than INR 500 can be deposited in a given financial year. It has to be INR 500 or more.
  • There cannot be more than INR 150,000 deposit in a PPF account in any given financial year as of today. This is subject to change please read this for Maximum and Minimum Limit for PPF.
  • Unlike savings bank account, a PPF account eventually matures. This happens because PPF is actually an investment tool. It will remain active for a given number of years. Once the period as defined is over, the account is called a matured account.
  • If the PPF account is close to maturity, the account holder can actually request for extending the maturity period for a period of 5 years, maximum. During this period, the account holder may choose to deposit money or may not do so.
  • Money deposited in PPF account earns interest. Usually the rate of interest hovers between 8% and 9% but barely touches 9%.
  • The interest rate is on annual basis. It is not monthly or quarterly or half-yearly interest rate.
  • Interest rate for a PPF account remains fixed throughout a fiscal year. Once the year is over, the government declares the interest rate for the next fiscal year and the newly declared rate is maintained throughout the year until the next announcement comes.
  • Individuals are allowed to deposit money in PPF account using a demand draft, a Cheque or by cash.
  • If someone decides to use Cheque, the date of deposit will be the date when the Cheque is cleared and not when the Cheque was deposited. Because of this, it is a possibility that one may end up losing a month’s worth of interest earnings if the Cheque fails to clear before the interest rate is calculated.
  • The minimum number of deposits allowed in a PPF account is 1 and the maximum number of deposits allowed in a PPF account is 12. Irrespective of the number of deposits used, the minimum and maximum allowed deposit amounts cannot be violated under any circumstances.

Can a PPF account go inactive or dormant?

Of course it can! If you stop paying just for a year, it will be inactive. Since PPF account is different from a Savings Bank account, the definition of an inactive account and a dormant account is different in case of PPF account.

In case of a PPF account, both inactive and dormant mean the same thing. So, failure to pay just for one year will mean your PPF account will be tagged as dormant.

What happens when a PPF account goes dormant?

There are two things that can happen in this scenario:

Scenario 1: It goes dormant and stays dormant until maturity

In this scenario:

  • The money that is already in the account continues earning interest till the account matures.
  • The account holder will no longer be able to ask for premature withdrawal, which is a feature of PPF account.
  • The account holder will no longer be able to ask for a loan against the account, which is also a feature of PPF account.
  • At the end of the maturity period, the already deposited money and the accrued interest is paid out.

Scenario 2: The dormant account is reactivated

In this scenario:

  • The account holder needs to physically approach the bank or the post office with a written application for account reactivation.
  • The account holder will need to pay penalty fee. The penalty fee is 50 rupees per year. This means that if the account has been dormant for 3 years, he or she will have to pay rupees 150 as penalty.
  • The account holder will need to pay the arrears for the dormant years. This means that if the account has been dormant for 3 years, the account holder needs to pay a minimum of 1,500 rupees or a maximum of 450,000 rupees as arrears. In other words, the account holder needs to pay 3 times the minimum deposit amount or 3 times the maximum deposit amount or 3 times any amount between the minimum and maximum allowed in a given financial year.

So, assuming that the account holder deposits INR 40,000 per year and he or she left the account dormant for 3 years, he or she needs to pay:

[(INR 40,000) x3] + [(INR 50) x 3] = INR 120,150

Unless this whole amount is paid, the account will not be reactivated.

That’s how you reactive a dormant PPF account! That’s simple but still, why do you want to take a financial burned. Paying a big amount at once is quite difficult.

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