The PPF (Public Provident Fund) scheme is one of the most popular investment schemes among Indians. The various benefits – tax-saving, guaranteed returns, safety make it the number one choice for millions of investors.
Here, in this guide, we introduce you the PPF scheme – benefits, features, and eligibility, how to apply, withdrawal rules and more.
What is the PPF scheme?
Commenced in 1968, the PPF (Public Provident Fund) scheme is offered by the National Savings Institute under the Finance Ministry. The plan aims to inculcate the habit of savings and investment among Indians, helping them build a large corpus over the long term.
It helps investors build their retirement corpus by saving a small amount regularly over a long period. The PPF scheme comes with a maturity period of 15 years, and offers attractive interest rates and tax benefits, making it one of the most sought after investment schemes.
How to open a PPF account?
The PPF scheme can be commenced at any post office in India or a nationalised bank of your choice like the SBI (State Bank of India), PNB (Punjab National Bank). Today, several private banks like HDFC, ICICI and Axis bank also offer PPF accounts for the benefits of their customers.
To open a PPF account, download/print a copy of the application form. Provide the required details, submit the required KYC documents like identity proof, address proof etc. Once you have submitted the required documents and your application is processed, you can commence your savings by depositing an initial amount.
Who can open a PPF account?
All Indian citizens. NRIs and HUFs (Hindu Divided Families) are not permitted to open a PPF account.
An individual can open only one PPF account in his/her name. However, the person can open another PPF account on behalf of a minor.
What is the interest rate for the PPF scheme?
The current interest rate earned by the PPF account is 7.90% per annum. The interest rate is compounded annually and is paid on 31st March. The Finance Ministry is in charge of setting the interest rate, and it revises the amount annually. The interest rate is calculated based on the minimum balance maintained in the account, on the close of the fifth day and the last day of a month.
PPF Features to Know
|Tenure||The minimum tenure of a PPF account is 15 years. It can be extended in blocks of five years, after maturity, if you desire.|
|Lock-in period||15 years|
|Maximum investment||Up to Rs. 1.5 lakhs per fiscal year (investments beyond Rs. 1.5 lakhs are not eligible for tax benefits and do not earn interest as well)|
|No. of investments in a year||Minimum – one
Maximum – twelve
|Minimum amount per instalment||Rs. 500|
|Initial deposit||Rs. 100|
|Mode of deposit||Cheque/DD/cash/online transfer|
|Nominee||Yes. At the time of account opening|
|Joint account facility||Not allowed. The account can be held only by one individual|
|Risk Factor||Minimal, as the government of India backs the scheme. It offers capital protection.|
|Loans against PPF||Yes, on the 3rd and 5th year of investment. The loan amount is up to 25% of the amount deposited in the preceding year. The second loan is permitted only when the first loan is fully repaid.|
An individual can close the PPF account only on maturity, i.e. 15 years from the scheme opening. At the end of 15 years, the entire amount accumulated in the fund along with interest earned is withdrawn, and the PPF account is terminated.
However, if fund holders require emergency funds, he/she is permitted to make partial withdrawals from the seventh year onwards. The account holder can withdraw a maximum of 50% of the amount standing in the account at the end of the fourth year (or the preceding year of withdrawal). However, note that partial withdrawals are permitted only once in a fiscal year.
What are the tax benefits of PPF?
PPF is an excellent tool for saving tax as it falls under the EEE (Exempt-Exempt-Exempt) category. Deposits made in the PPF account are eligible for tax deduction under Section 80C of the ITA. Besides the deposits, the accumulated corpus and interest earned are also tax exempted at the time of maturity/withdrawal.
FAQs on PPF
Can I close the PPF account before maturity?
No. A PPF account cannot be closed before the completion of 15 years. However, in the case of the account holder’s demise, the nominee can place a request for the closure of the account.
Can I invest more than Rs. 1.5 lakhs by opting for two or more PPF accounts?
No. As per the rules of PPF account, an individual can hold and operate only one PPF account.
I hold a PPF account in the name of my child. Can I claim tax deductions on it?
Note that the maximum investment cap of Rs. 1.5 lakhs applies to all PPF contributions, irrespective of whether it is your account or your child's account. For example, let's say you contribute Rs. 1 lakh to your PPF account and Rs. 1 lakh to your minor child's PPF account, you can claim deductions up to Rs. 1.5 lakhs only and not for the entire Rs. 2 lakhs.
Can I invest more than Rs. 1.5 lakhs in my PPF account in a fiscal year?
Yes. However, you can claim tax deductions only up to Rs. 1.5 lakhs. The amount invested above Rs. 1.5 lakhs do not earn any interest as well.
I want to leave behind a legacy for my grandchild. Can I open a PPF account in my grandchild’s name?
No. Only parents can open a PPF account for their minor child. However, if both parents are deceased, then a grandparent can operate a PPF account on behalf of the minor child.
When is the interest calculated?
Only contributions made on or before the 5th of every month will be considered for interest calculations for that month. All other contributions are added to the subsequent month for interest calculation.
For example, let’s consider that an account has Rs. 50,000 at the start of the month. The account holder invests Rs. 20,000 on the 10th of the month. Interest for September considers only the initial deposit of Rs. 50,000. The additional investment is considered for the next month’s interest calculation.
Can I extend my PPF account after maturity?
Yes. The PPF account can be extended in five year blocks at the end of the 15th year.
Additional Reading: How to check PPF Account Balance: Online and Offline
Grow your Wealth with a PPF Account
The PPF is an excellent investment cum savings tool to build your long-term corpus. Safety, high-interest rates, and tax benefits make it one of the most lucrative long-term investment options for Indians. Open a PPF account and start building your wealth.