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Public Provident Fund Scheme (PPF Account) – Features, Tax benefits

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Public-Provident-Fund-PPF

Public Provident Fund (PPF) is one of the safest, long term investment options with tax benefits. This scheme is managed by Government of India.

Why should you invest in PPF Account?

  • Safe investment –  Government scheme
  • Long term – 15 years
  • Returns approx 8.5 – 9%
  • Tax free Interest & tax free maturity amount
  • Deduction u/s 80C for investment made in PPF
  • Amount in PPF account is also exempt from Wealth tax.
  • PPF account is free from attachment by a court in respect of any debt or liability

Tax benefits of PPF Account

PPF falls into E-E-E (Exempt-Exempt-Exempt) mode of taxation.

  • Annual investment into PPF account is eligible for deduction u/s 80C
  • Interest earned on the PPF account every year is Tax FREE
  • Maturity Amount is Tax FREE

Amount in PPF account is also exempt from Wealth tax.

Interest Rates for PPF

Interest rates are notified by government periodically. Current interest rate is 8.80% p.a compounded annually. Interest rates over time:

01.04.1986 to 14.01.2000 14%
15.01.2000 to 28.02.2001 11%
01.03.2001 to 28.02.2002 9.50%
01.03.2002 to 28.02.2003 9%
01.03.2003 to 30.11.2011 8%
01.12.2011 to 31.03.2012 8.60%
01.04.2012 to 31.3.2013 8.80%
01.04.2013 to present 8.70%

PPF interest is calculated on the minimum balance between the 5th day and end of the month.

If you invest Rs 1 Lakh every year for 15 years, you can accumulate the corpus of approx Rs 31 lakhs (assuming 8.7% interest)

How much can I invest in PPF?

  • Minimum Investment – Rs 500 per year .  If you donot deposit at least Rs 500 in PPF in a year, the account will be treated as Inactive. However, you can re-activate the account by paying Rs 500 + Rs 50 penalty for each year of default.
  • Maximum Investment limit in PPF is – Rs 1 lakh per year
  • Maximum installment in 1 year – 12  
  • In case of a minor’s account, the investment in the minor & guardian account together cannot exceed SR 1 lakh per annum

Who can open PPF Account

  • Individuals who are residents of India
  • Can also be opened on behalf of minor child.
  • Cannot open more than one account in own name
  • Cannot have joint account.

Non-resident Indians (NRIs) are not eligible to open an account under the PPF Scheme. However, if a resident, who subsequently becomes a NRI may continue to subscribe to the fund until its maturity on a non-repatriation basis.

Duration

Minimum Duration for PPF is 15 years.  

Maturity period is calculated as 15 years from the end of the year in which PPF account is opened. The first year of investment is not counted for 15 years maturity. For e.g If you have opened the PPF a/c on 01 July’2000, then 15 years tenure will start from the end of FY 2000-2001 i.e. 31st March 2001. The maturity date in this case would be 31st March 2016.

However, you can extend the investment period, or you can take loans / withdraw amounts during the tenure subject to certain conditions.

Extension

  • After maturity of 15 years, you can extend it in block of 5 years.
  • You can extend it with contribution or without contribution
  • You can extend the PPF account indefinitely.
  • You have to fill Form “H” form within 1 year from the date of maturity

PPF withdrawal

  • On Maturity, Full amount can be withdrawn.
  • If PPF Account is extended with fresh subscription, then you can withdraw up to 60% of the balance at the commencement of each extended period

Pre-maturity Withdrawal during PPF tenure

  • Partial withdrawals are allowed after the expiry of 5 financial years.
  • You are allowed to withdraw once in a year.
  • Withdrawal amount must not exceed 50% of the balance at the end of the fourth year, or 50% of the balance at the end of the immediate preceding year, whichever is less.

Loans

  • You can take loan against PPF account after the expiry of 1 year but before the expiry of 5 years
  • You can take Loan upto 25% of the credit balance at the end of the 2nd year immediately preceding the year in which the loan is applied

How to open PPF Account

You can open a PPF account at

  • local post office,
  • State Bank of India and its subsidiaries,
  • selected PSU Banks &
  • private sector banks like ICICI Bank.

Some banks also offer the facility of opening the PPF account online. Read – How to Open PPF Account Online

List of Banks authorised for PPF Account

How to deposit money in PPF

You can deposit the money in PPF account by cash, cheque and online transfer. Read – How to Transfer funds to PPF account online.

Summary

PPF is one of the best investment option which is safe, provide reasonable returns & tax efficient. It can help you to meet your long term goals of retirement, children education, marriage etc.

If you have any queries related to this article or any other personal finance query ( Investment, Taxation etc), please comment below

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About wealth18

The author is a Chartered Accountant and loves to write about Personal Finance, Wealth Management, Taxation etc. Disclaimer - The articles on this website is for informational and knowledge purposes and should not be treated as financial advice, Please consult your financial advisor before taking any investment decision.

29 comments

  1. Hi Vivek,

    After maturity, Can I transfer the PPF maturity amount to my saving account online or do I have to physically withdraw the amount from bank?? I have Saving a/c and PPF account in same branch of SBI.

    Plz answer.

  2. Hey! I am an amateur. I want to save tax as well as invest for long term. Considering all the viable options, PPF seems to be the most lucrative option. Just to confirm, wether I got it right. As per your article if I invest 1lc/ yr for 15 years, the maturity amount 31lc approx is NOT TAXABLE??

    • Hi Rohini,

      Yes base don current interest rate of 8.7%, if you invest 1 lakh each year in PPF, youc an accumulat Rs 31 lakh & it will be tax free as well.

      Just to remind you that Interest rate on PPF is announced by government every year and is normally inline with prevailing FD rate. If in future, the interest rate offered may fall and corpus may be less.

  3. I have ppf account in canara bank and I want to transfer money to ppf through canara bank .how it is possible

  4. Dear Sir,

    I am depositing Rs. 1000 in my PPF account since last three years.

    I wish to know how to calculate Compund annualised grown return on this amout.

    Let us assume that i am depositing Rs 1000 every month and continue to do so for 15 yrs , what will be my annualised return on this PPF account.

    Generally, ELSS / tax saver mutual funds gives returns @ 15 %.

    should i also invest into tax saver mutual funds for higher returns.

    Pls guide.

    Thanks

    • In the long term, ELSS funds have performed well as compared to PPF.
      PPF is fixed income product with no risk while ELSS are Equity based with high risk. And therefore the returns are different.

  5. Hi Vivek,

    . I want to open a ppf a/c in my daughter’s name, who is now 6 yr old, for 20 year. My age is 38. I will invest Rs. 100000 p.a. Besides i have a self ppf a/c in my name in which I’m investing Rs. 50000 p.a. So can i can get tax deduction for my daughter’s ppf? How can i get it,, what is to be produce as document to my office,,for tax deduction?????.. Plzz reply..

    • You can submit the copy of PPF passbook for yourself & daughter, and the company should give you that deduction.

  6. Hi,
    I’m working in private company. to avoid tax deduction I want to open ppf account. but after opening ppf account What is the process to claim tax relief So i can prevent tax deduction on my salary/earning.

    • You can open PPF account and invest the money in it.
      You can submit the deposit receipt to your employer and they will give you deduction under section 80C while calculating the TDS amount.

  7. What is the difference between GPF, CPF, EPF & VPF ?

    • GPF = general provident fund – it is for government employees
      cpf = contributory provident fund- applicable to every non-pensionable servant of the Government belonging to any of the services under the control of the President.
      EPF = employee Provident fund
      vPF – voluntary provident fund – company allow you to constribute more than 12% voluntarily.

  8. I have a ppf account with me , is there any way I can join my souse or transfer my PPF account to spouse so that she can get tax benifit.

    • The PPF account can only be opened in one person’s name. You cannot open it jointly.

      If your spouse deposits any amount into your PPF account, you will not be able to claim the deduction benefits under section 80C. Only, your spouse will be able to claim section 80C deductions on his/her income.
      While tax laws allow you to claim 80C tax benefits for deposits into your spouses account, the same rule does not apply to your parents, siblings or relatives.You cannot claim section 80C deductions for any amount deposited by you into your parents’ or siblings’ accounts.

      • thank you for the reply. So if she transferrs money from her bank account to PPF account( i am not sure does the online transfer from hdfc bank to PPF account in bank of baroda ) is possible or not., How she will show the proof of tax exemption ? the PPF account is on my name right? wht proof she can show at tax exemption

        • The online transfer doesnot work for all PPF accounts as they are not in standardised format across banks.
          She can show the bank statement or print screen of Transfer and copy of updated PPF passbook.

  9. I’m working in private co. and having the EPF account. Can I open PPF account also? If yes, then that also tax free right?

    Thanks.

    • Hi Harish, yes you can open PPF Account.

      The interest is tax free. You can also claim 80C benefit for he investment made in PPF account. (total 80C benefit is Rs 1.50 lakhs).

  10. Chandranath Gupta

    Sir, My 25 years old son has gone to US for studies in the August 2014. He is currently under student visa. He has a PPF Account with Bank of India. This account has been extended after 15 years once. Now the account is 20 years old and was due for extension before 31st March 2016. Deposits in his account is made by me. Is he be considered as NRI and not allowed for any extension?

    Kindly advice.

    C N Gupta
    Mumbai

    • Hi Mr Gupta, As he is out of India since Aug 2014, he will be considered as NRI. PPF Extension is not allowed for NRI.

      However, you can visit the Bank branch with him, when he is next in India, and check with branch official if they can extend this PPF account.

  11. dibyendu biswas

    I have PPF account in SBI and want to Transfer from HDFC bank. It is Possible to transfer by net banking. So Which Option chose in Beneficiary account type: Current, Saving, Overdraft,Cash credit, loan account,NRE, CARD payment.

    Kindly Clear my matter.

    • You can transfer money online to SBI PPF account only from SBI Netbanking if both accounts are mapped. Trasferring from HDFC to SBI PPF doesnot work properly.

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