Citizens' Issues
Public Provident Funds and HUFs: The untold story

HUFs cannot open a PPF or even a post-office account since May 2005; but people continue to be taken for a ride and the accounts continue to be opened out of ignorance

This is an issue that is several years old, but we revisit it because too many people are still unaware of how the government functions with regard to schemes that use banks and post offices as collection points.

Here is what is happening to a lot of people. A reader, RJ, wrote to us: "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? How do I get justice?"

While this story may sound outrageous, the Reserve Bank of India (RBI) tells us that getting justice may not be so easy. It is, indeed, a fact that HUFs cannot open a PPF or even a post-office account since May 2005; but people continue to be taken for a ride and the accounts continue to be opened out of ignorance. Does that make the bank liable?

According to sources in RBI, it does not. The bank only acts as a collection agent for what is essentially a government scheme and earns a tiny commission for the service rendered. It is the job of the customer to know the rules and regulations. Incidentally, the bank does not get to use the funds or the float on it, so it is not possible to hold it accountable or ask it to pay interest. Bankers also say that after a spate of complaints, the government issued advertisements informing HUFs about the changed rules.

However, the bottom line is that when it comes to government schemes, the banker is only a facilitator and investors need to know the rules. A bit of sage advice from a banker to the thousands of angry customers who have threatened to take SBI to court is: First safeguard your principal by withdrawing the money, even if it is after deduction of interest. Only then, launch a battle. If a lawsuit is filed, it is clear that the Supreme Court will, ultimately, decide whether collecting banks or post offices are supposed to know the rules and are liable to pay interest. Until then, the best course is for such depositors to come together for a legal fight.

User

COMMENTS

THAKKAR

6 years ago

Dear Sir / Madam,

My PPF account has matured on 31/03/2010. If I extend it ''with contribution'', can I close the account whenever I want (e.g. after 1 year or 2 years), or do I have to compulsorily continue it for 5 years ?

REPLY

Deepak R Khemani

In Reply to THAKKAR 6 years ago

If your account has matured on 31-3-2010 then before making a deposit this year before 31-3-2011 you have to get an extension done for 5 years, you can close it only after 5 years but you can make withdrawals upto 60% of your balance dated 31-3-2010 anytime in these extended 5 years

Thakkar

In Reply to Deepak R Khemani 6 years ago

Sir,

In the current high interest rate scenario, do you think it is wise to extend my PPF account for another 5 years ? or should I close the account and invest the amount in some bank fixed deposits which can give more than 8% even after deduction of 10% tax (as I fall in 10% tax bracket) ? If you suggest to withdraw, please try to suggest where ( in bank FD or any other better avenue) can I invest the amount received from my PPF account. Thanks

Deepak R Khemani

In Reply to Thakkar 6 years ago

Thakkarji, That depends on your age, If you have no other source of income then it makes sense to withdraw the full tax free amount and keep it on interest for a long period and as you are in the 10% slab this makes a lot of sense, you can open a new PPf account and continue to deposit up to 70,000/= per year and enjoy tax free 8% interest and tax benefits under 80C.

THAKKAR

6 years ago

Your article on PPF was very informative. Thanks for the same. Regarding PPF, can you please provide the following information :

1) My PPF account has matured on 31/03/2010, but I have not closed it till now. If I close it, say on 01/03/2011, at what rate will I get interest for the period from 31/03/2010 to 01/03/2011 ? 8% or 3.5% ?

2) After maturity, if I want to choose option "Continue the PPF account without making any further contribution", do I have to submit any form or application ?

3) Do you have any updated information about the provisions of new direct tax code applicable to PPF ? Is the provision of EET going to be implemented from 01/04/2011 for PPF Accounts ?

Please reply at the earliest.

Thanks in advance.

CBT

REPLY

A Sundaram

In Reply to THAKKAR 6 years ago

1)8%
2)No
3)While it would be prudent to await the actual implementation of DTC prior to taking any action,certainly no amendments are proposed from 1.4.2011.

krish

6 years ago

MONEYLIFE! CAN U PL CLARIFY THE SAME ISSUE wrt INDIVIDUAL PPF accounts? WHAT ARE THE NO. OF YEARS ETC. ?
IF PPF IS ACCEPTED BY ANY BANK, GOVT. OF INDIA, RBI & CO. ETC. ARE BOUND TO GIVE INTEREST AT THE PREVAILING NORMS. THEY CAN NOT REFUSE. IF THE STATE ITSELF DOES FRAUD WITH THE PUBLIC, WHAT WOULD THE PUBLIC DO? NO WONDER ALL 'BADDIES'(IN HINDI) WILL CONTINUE IN INDIA AS THE PUBLIC DOESNT TRUST GOVT. AND VICE VERSA!

Jatin Gandhi

6 years ago

In fact in one of my clients case, bank has dedcuted interest credited in his HUF account from the date of renewal of account. So the money remained with the bank without any interest.Pl let us know the way out, if there is any.

REPLY

Deepak R khemani

In Reply to Jatin Gandhi 6 years ago

If the HUF account was renewed(Extended for 5 years) after the notification then nothing can be done take your money and close the account and invest it somewhere else. However if the 5 year extension was done before the notification came then the account will be operative till the end of those 5 years and full interest is payable. I hope this helps,there is no other way out though.

SUNIL HEMNANI

6 years ago

It does appear to be a very big uphill task for customers who are willing to get involved in such a case.I totally agree the smartest thing to do would be firstly withdraw the amount from the account. However i would have a question that if you do actually win would it be with a compensation and how would that actually benefit a customer.This definately a battle for those with a big heart.For the greater good of the public and for the principle of the issue what is banks responsibility as a issuer of service.

REPLY

Deepak Khemani

In Reply to SUNIL HEMNANI 6 years ago

If the matter goes to the supreme court the customer will never win. As it is said it is the duty of the subscriber to know the rules.
I can tell you that we as agents for the PPF scheme advised our clients as soon as we came to know of the rules most of our clients withdrew their money. Those smart ones who thought they knew more than us and didn't want advice continued and now are the sufferers having lost all the interest for all these years. The rules are very clear HUF's cannot open accounts after that date and also extensions are not permissible, the same being the case with accounts in a minor's name.

Sundaram

In Reply to Deepak Khemani 6 years ago

I was under the impression that Minor's PPF A/cs can be opened with Father as the guardian,the only restriction being that the annual contributions to the Guardian's self A/c plus the Minor's A/c should not exceed Rs.70,000/-.Since you are an agent for PPF,request your guidance.Is my understanding correct?

shrigopal jhunjhunwala

In Reply to Sundaram 6 years ago

yes you are correct, You are allowed to open the account in the name of minor with the cap on total investment of 70000 during a financial year

Deepak Khemani

In Reply to Sundaram 6 years ago

The total contribution in a year under self and minors names cannot exceed 70,000 in a financial year. Here the condition being that the minors accounts were opened prior to the 2005 notification.

ramchandran

6 years ago

Individuals cannot have more thatn one PPFaccount . There is a norm among people that they open multiple PPF accounts (say in a minor's name) . I do not see the point of not allowing an other account to be initiated

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