PUBLIC PROVIDENT FUND (PPF) TO END ALL TIES WITH HUFs

NAGPUR: Hindu Undivided Families (HUFs) across the country will to have take back their money lying in the public provident fund (PPF) 15-year savings scheme. After the government stopped fresh investment by HUFs in PPF from May 2005, many continued to have the money parked in the scheme as it earned them a 8% tax-free interest. Some were older investments yet to finish the 15-year period while the others availed a five-year extension that was available in the scheme.

However, the ministry of finance in a recent notification has said that money shall be refunded as soon as the 15-year period ends for the PPF accounts opened before May 13 2005 on behalf of HUFs. For those accounts where the 15-year period has already ended, the money will be refunded on March 31 next year.

This means those accounts opened after the ban in 2005 was imposed will be allowed to continue only till the tenure ends while the others will be terminated at the end of the current financial year.

"There are many accounts which are running on a five-year extension. But, with the current rule, they will be terminated by March end, no matter the extension period has ended or not," said a source dealing with PPF and other small savings schemes like the national savings certificate (NSC), Kisan Vikas Patra (KVP) and post office recurring deposits. These are managed by the city-based National Savings Institute (NSI).

Fresh investments by HUFs into PPF was stopped as it was observed that the facility was being largely misused. Investments were made in the name of HUFs as well as individuals as both are considered as separate entities. This allowed the investors to earn the 8% tax-free income both as a HUF and an individual. This continued even after the ban came into place.

The philosophy of small savings is to provide savings window mainly to the middle class or those living in remote areas where banking services are not available.

The move to put an end to the scheme for HUFs is also aimed to increase the direct tax collections by removing the loopholes which provide a leeway for claiming undue tax exemption.

The government has paid Rs 9,300 crore of interest on PPF as on 2009-10 at 8%. With this, the total investment of Rs 116250 crore is estimated to be lying in the PPF accounts. According to rough estimates, around 10% of the investment at Rs 11,625 crore is from the HUFs, which will now be refunded.

The total amount invested in different small savings schemes are accumulated as the national small savings fund which stands at over 7,00,000 crore invested in special securities of the state as well as the central government.


Source:TOI