You may have often heard of a PPF account or a public provident fund. You may even have stopped to wonder about what is PPF or what is a public provident fund. Worry you not, we have a detailed answer waiting for you!
PPF stands for Public Provident Fund. It is a long-term savings scheme brought to the people by the Government of India. It is ideal for investment if you want to have long-term savings or long-term financial goals. Therefore, lots of people choose to have a PPF account for their retirement savings.
In this article, we will talk about what is PPF, PPF scheme, PPF benefits, and how to invest in PPF, among many other useful pointers! Read through this article to inform yourself thoroughly about the PPF scheme and make wise investment decisions.
What is PPF? PPF stands for public provident fund. It is a safe investment option that allows you to save on taxes. A PPF account also helps you earn guaranteed returns since it is a scheme started by the Government of India. A PPF investment is long-term.
It is ideal if you are planning to save up for long-term financial goals. These goals can involve plans like retirement plans and funding the education of your children. It helps you accumulate funds while reducing yearly taxes.
Any Indian citizen can open a PPF account. This includes salaried individuals, self-employed people, and minors. NRIs are not eligible to open a PPF under the PPF scheme or make a PPF investment.
There is only one type of PPF account that you can open. One person can only have one PPF account to their name. Parents can also open a PPF for their minor children.
The returns and interests earned on a PPF investment are not taxable under the income tax. It has an interest rate of 7.1% per annum. You can invest a minimum of Rs. 500 in your PPF account. The maximum amount that you can invest is Rs. 1.5 Lakhs per annum.
Under the PPF scheme, you have to open a PPF account. The amount that you deposit in a year can be claimed under Section 80C deductions.
Now that you know what is PPF, you may be wondering about how to invest in PPF. For that, you will first have to open a PPF account in the PPF scheme.
Opening an account involves a very simple procedure:
The minimum amount that you can deposit into your PPF account is Rs. 500. The maximum amount of PPF investment that you can make is Rs. 1.5 Lakhs.
Investors can make deposits in their PPF accounts as per their schedule but there are certain limitations one has to bear in mind. An investor can make a minimum of one and a maximum of 12 deposits in a financial year to their PPF account. The combined amount deposited should not exceed Rs. 1.5 Lakhs in a financial year.
The amount that you want to invest can be submitted through cash, cheque, or demand drafts to the banks or post office where you have opened the PPF account.
The Finance Ministry sets the interest rates for PPF investment every year which is paid on 31st March. This interest is calculated on the lowest balance between the fifth day and the last day of every month.
All deposits made to a PPF account are deductible to Section 80C of the Income Tax Act in the Constitution. The amount of interest earned on the amount invested is also exempted from tax when you withdraw it. However, it is to be noted that PPF accounts cannot be closed prematurely.
A PPF account has a tenure of 15 years. Investors can extend this tenure by 5 years when the account reaches maturity. Extensions can be sought indefinitely in blocks of 5 years every time the account matures.
During the period of extension, investors cannot make fresh contributions to their accounts. The interest will continue adding up at the prevailing rate. The investor can withdraw the entire balance amount at any point during the extended period.
The PPF lock-in period is 15 years and the PPF account cannot be closed before it matures. However, some circumstances can help you make an exception to this rule. These include:
The Public Provident Fund is a highly popular long-term investment scheme in India. This is so because of the benefits that it offers. Let us look at some PPF benefits:
Having a PPF account comes with its own set of drawbacks. These are:
Public Provident Funds have certain advantages over other investment options which makes them so popular. These advantages include:
In this article, we learned about what is PPF, the PPF tax scheme, PPF tax benefits, etc. The public provident fund is a low-risk, safe investment option for those people who are looking for long-term investments. One may even choose a nominee for their account and these accounts can be opened for minors as well.
The PPF lock-in period is 15 years but partial withdrawals and taking loans on your PPF balance are allowed. All in all, it is a great scheme because it also offers you tax benefits. Interests and returns earned on PPF investments are not liable to taxation under Section 80C of the Income Tax Act.
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In a Public Provident Fund (PPF) account, the minimum annual deposit is Rs. 500, while the maximum contribution allowed per financial year is Rs. 1.5 lakh. This flexibility allows individuals to invest according to their financial capabilities. It is important to note that the deposited amount should be within these limits to avail of the benefits associated with a PPF account.
No, an individual is not allowed to open multiple PPF accounts for themselves. According to the rules, a person can have only one PPF account in their name. Opening multiple accounts is considered a violation and can lead to penalties. However, they can contribute to a PPF account in the name of their spouse or children, subject to the overall contribution limit of Rs. 1.5 lakh per financial year.
Premature closure of accounts is allowed only under certain circumstances which include medical emergencies, higher education, and death of the account holder. The penalty amount is equal to 1% lower than the interest rate applicable to the PPF account.
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