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The Public Provident Fund is a saving instrument that has tax-saving benefits. It was introduced by the ministry of finance in 1968. The fixed deposit returns in the banks are very low these days and compared to them the returns provided by the Public Provident fund are quite reasonable the other advantage is that it has tax-saving benefits.
The PPF is a popular saving investment product because it is backed by the government of India and hence it is safe to invest the money. The interest rate is set by the government every year.
Interest payable on PPF-
The interest payable on the PPF is 7.1% per annum compounded yearly.
The interest will be applicable as notified by the ministry of finance on a quarterly basis and credited to the account at the end of each financial year.
The minimum amount for opening a PPF account-
The public provident fund can be opened with a minimum amount of Rs. 500 and a maximum amount of Rs 1.5 lakh can be deposited in a financial year. The deposits can be made either in lump sums or in installments.
The amount can be deposited in a PPF account in any number of installments in a financial year in multiples of Rs. 50 and the maximum limit is Rs 1.50 lakh. The account can be opened by cash or cheque and in the case of cheque, the date of realization of the cheque would be considered the date of opening of the account.
Who can open a PPF account?
The PPF account can be opened by a single adult who is a resident of India, and by a guardian on behalf of a minor or person of unsound mind. Only one account can be opened in the country either in Post Office or a bank.
How to open a PPF account-
A public provident fund account can be opened in a Post Office or a nationalized bank or certain private banks like the ICICI, HDFC, or Axis bank. The following documents need to be submitted for opening the account-
- A filled application form.
- Proof of identity- Aadhar card, Pan Card, passport, or voter ID card.
- Proof of residence- An Electricity bill, water bill, telephone bill, or ration card.
- Passport size photographs and a nominee declaration form.
Withdrawal-
A subscriber can fully withdraw the PPF account balance at maturity on completion of 15 years and the account can be closed.
But if the account holder is in need of funds he can take one withdrawal during a financial year after five years, excluding the year of account opening (If the account was opened during 2013-14 the withdrawal could be taken during or after 2019-20.)
The account holder can withdraw up to a maximum of 50% of the amount that is in the account at the end of the 4th year or at the end of the preceding year, whichever is lower.
Loan against PPF-
A loan can be taken against the public provident fund after the expiry of one year from the end of the financial year in which the account was opened (if the account was opened in 2013-14, the loan can be taken in 2015-16). Only one loan can be taken in a financial year and is 25% of the total available amount.
A second loan can’t be provided till the first loan is repaid. If the loan is repaid within 36 months of the loan taken, a loan interest rate of 1% per annum is applicable, and if the loan amount is repaid after 36 months of the loan taken a loan interest rate of 6% per annum will be applicable.
Discontinuation of account-
The public provident fund account will stand discontinued if in any financial year a minimum deposit of Rs. 500 is not made. The loan facility or the withdrawal facility is not available in a discontinued account. The discontinued account can be revived again by depositing a minimum subscription of Rs. 500 and Rs 50 default fee for every default year.
Premature closure of PPF account-
The premature closure of a PPF account is allowed after 5 years from the year in which the account was opened under the following conditions;
- In case of a life-threatening disease of the account holder, spouse, or children.
- For pursuing higher education by the account holder or dependent children.
- If a person becomes an NRI.
At the time of closure, a 1% interest will be deducted from the date of account opening, and the account can be closed by filling out the prescribed form and submitting the passbook at the post office.
Closure of PPF account on maturity-
The PPF account matures after 15 years from account opening. On maturity, the depositor can make the payment by submitting the account closure form along with the passbook at the post office.
The account holder can extend the account for a further period of 5 years (within one year of maturity) by submitting the extension form at the post office. In the extended account, 1 withdrawal can be taken in each financial year with a maximum of 60% of the balance credit at the time of maturity. There is no limit on the number of times the account can be extended.
Tax benefits of investing in PPF-
PPF falls in the Exempt-Exempt-Exempt (EEE) category. The investment options falling under this category are considered tax-free.
The first exemption qualifies for a deduction. The part of salary equal to the investment amount is not taxable. The second exemption signifies that the interest earned during the accumulation phase is also exempt. The third exempt means that the income generated from the investment would not be taxable during withdrawal. This means that the principal, interest, and withdrawal are all tax-exempt.
Nomination-
The nomination facility is available in the name of one or more persons and the share of nominees can be mentioned by the subscriber.
Transfer of Account-
The PPF account is transferable from one post office to another and from the post office to a bank or from bank to post office.