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

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.

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