In respect of following question by one Mr.S Sriram:
"I know that the limit for the Public Provident Fund is Rs 70,000 per financial year. However, I went ahead and invested Rs 90,000 in the last financial year. I am sure the extra Rs 20,000 will not be eligible for a deduction under Section 80C. What I want to know is if it will still earn interest?"
I must clarify that, there is no onus on Banks or other financial institutions to accept only upto Rs.70000/- per PPF account. So banks are free to accept any amoount per account holder. However no interest will be paid on amount deposited in excess of Rs.70000/- (so no interest shall accrue on Rs.20000/- in this case). Further, there was a limit of Rs.70000/- for deposit in PPF account for claiming tax rebate in earstwhile section 88 of Income Tax Act. However, under new provisions as contained in section 80C, there is no such limit, so deduction shall be allowed on whole of Rs.90000/- in this case.
For any excess amount above Rs.70000 deposited in a PPF account you have advised that interest has to be paid by the bank. The onus of depositing an amount not exceeding 70000 lies equally on both the depositor and the banker. Even either of them falters and more amount is collected into the account then the bank is bound to return the amount to the depositor at Post Office Savings Account interest rates. Imaging otherwise, most of them would simply park their funds in the PPF account beyond 70000 - just for the sake of safety and attractive returns. As per the PPF rules any amount deposited (by mistake) beyond the upper limit of Rs.70000 attracts interest rates paid on Post Office Savings Account.
