The rules applying to HUF’s PPF accounts have been modified with effect from May 2005. While earlier an HUF could open a PPF account and save tax on the deduction, this has now been stopped.
The rule states that:
“As per GSR 286(E) dated 13.5.2005 circulated vide SB Order 10/2004 dated 23.6.2005, only individuals can open PPF account from 13.5.2005.
A further clarification was issued vide then DDG (FS) D.O. letter No. 113-10/2004-SB dated 5.9.2005 and again reiterated vide SB Order No.20/2005 dated 14.11.2005 vide which it was conveyed that existing PPF accounts opened in the name of HUF would continue till maturity and enjoy all facilities available under earlier rules but their maturity period cannot be extended further after 13.5.2005.”
Therefore the present position of PPF (HUF) accounts is:
- PPF accounts opened in the name of HUF prior to 13.5.2005 cannot be further extended after maturity and no further deposit can be accepted in such accounts after maturity.
The position of PPF accounts opened in the name of HUF prior to 13.5.2005 will be as follows:
- PPF accounts opened in the name of HUF prior to 13.5.2005 will be closed on maturity i.e. 31st March of the 16th Financial Year from the year in which account was opened. No further interest will be admissible.
- PPF accounts opened in the name of HUF prior to 13.5.2005 but have already been matured but not yet closed, shall be closed on 31st March, 2011 after which no further interest shall be admissible.
So unfortunately, existing HUF PPF accounts will continue to operate normally until maturity, but cannot be extended beyond maturity, and no new HUF PPF accounts can be opened. This being said, a lot of banks themselves are unaware of this rule, but that doesn’t mean you should try to take advantage of their lack of awareness.
In fact, there is an interesting true case of a person who wrote to a personal finance website with this query:
“I have a Public Provident Fund (PPF) account with State Bank of India (SBI) in the names of two HUFs (Hindu Undivided Family) of which I am the karta. The account has been operative for over 25 years and was renewed in April 2007 for a five-year period. Since then, the Bank accepted the maximum investible amount of Rs70, 000 every year until March 2010 and also credited interest on the amount for three years until March 2010. Now, the branch manager says that I cannot get interest as per a government notification issued in May 2005. Why then did the Bank renew my account in 2007 and accept my deposits every year?”
You would think that since the customer and also the bank were both ignorant of the changed rule, the customer would not be penalized and would receive his interest, but this is not the case. It is the customer’s prerogative to know the PPF rules. The RBI does not hold banks liable for any mistakes carried out on the bank’s part by not educating the customer. The bank is only the facilitator; it is your duty to know the rules.