Are you also thinking of ways to grow wealth over the long term while ensuring your investment is safe and reliable? Discover the Public Provident Fund (PPF) Scheme—a standout choice for investors! Endorsed by the Indian government, this scheme promises secure, steady growth and delivers significant tax benefits and assured returns. Embark on your journey to financial stability, confident that your investment is protected and profitable.
What is PPF?
Public Provident Fund (PPF) is a savings cum tax saving instrument in India introduced by the National Savings Institute in 1968. As an initiative under the Ministry of Finance, this scheme has a guarantee from the government. Hence, it is a long-term investment scheme suitable for people with low-risk appetites who want a stable return. Moreover, the PPF account is not linked to the market and is unaffected by market volatility.
When you open a PPF account, a schedule is set up for the applicant to deposit money regularly. The interest on these deposits is compounded annually, ensuring your savings grow steadily.
Eligibility for Opening PPF Account
- Only individuals who are residents of India are eligible to open a PPF account.
- There is no age limit for opening a PPF account. Both minors and adults can open an account. However, a guardian must operate the account on behalf of a minor.
- An individual can open only one PPF account in their name. However, one can also open a separate PPF account on behalf of a minor child.
- NRIs are not eligible to open a new PPF account. If an individual becomes an NRI after opening a PPF account, they can continue maintaining it until maturity but cannot extend the account.
- PPF accounts cannot be opened jointly. Each account is individual, but guardians can operate accounts for minors.
How does PPF Work?
- First, you need to open a PPF account. The account opening facilities are available at designated banks and post offices. Besides, online and offline facilities for account opening are available.
- Investment is the next step in the process. You can deposit a lump sum or installments, with a maximum of twelve installments yearly.
- Interest is calculated on the lowest balance in the account between the 5th and the last day of the month.
- After 15 years, the account matures, and the account holder can withdraw the entire balance. Extensions in blocks of 5 years are possible if the investor chooses.
Features and Benefits of a PPF Account
Some of the key features and benefits of public provident fund are as follows-
- PPF is an attractive long-term investment plan with a period of 15 years, which helps the investor accumulate a lump sum amount by retirement time. The interest rate is currently 7.1% per annum and provides a considerably better amount than a bank FD.
- Investment in the Public Provident Fund is wholly exempted from tax.
- Guarantees risk-free returns.
- You can invest as small as 500 rupees up to 1.5 lakhs. Hence, it requires only a lower investment.
- You can easily access it through banks, post offices, or online.
- PPF funds enjoy strong protection, as they cannot be attached under any court order or claimed by creditors. This ensures that your investment in the PPF remains secure and untouchable.
- You can avail of a loan from your PPF account between the 3rd and 5th financial year after opening the account. The loan amount can be up to 25% of the balance at the end of the 2nd year before the loan application. A second loan is possible before the end of the 6th year, provided the first loan is fully repaid.
- Partial withdrawals from your PPF account are allowed starting the 7th year and can only be made once a year. However, The Public Provident Fund account can be closed and fully withdrawn after it matures at 15 years.
How to Open a PPF Account?
Individuals can activate their Public Provident Fund account offline or online, provided they meet the eligibility criteria. To activate a PPF account online, visit the portal of your chosen bank or post office. The following documents are required for activation:
- KYC documents (e.g., Aadhaar, Voter ID, Driver’s License)
- PAN card
- Proof of residential address
- Nominee declaration form
- Passport-sized photograph
Tax Benefits of Public Provident Fund
The principal amount you invest in a Public Provident Fund account is eligible for income tax exemptions. You can claim the entire investment for a tax waiver under Section 80C of the Income Tax Act, 1961, but the total amount invested in a financial year cannot exceed Rs. 1.5 lakh.
Additionally, the interest earned on the PPF investment is also exempt from tax.
Therefore, redeeming the entire amount from a PPF account at maturity is not subject to taxation.
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Withdrawals from the Public Provident Fund
Investors in a Public Provident Fund account must adhere to several conditions for withdrawing funds. The principal amount invested is locked in for a mandatory period of 15 years. In specific emergencies, partial withdrawals are allowed, but only after completing five years from the account activation. Each financial year after the 4th year, up to 50% of the total balance can be withdrawn in one transaction.
It’s important to note that funds in a PPF account cannot be accessed before maturity. Individuals seeking stable, risk-free, long-term investment options can confidently choose this government-backed instrument.
Loan Against PPF Scheme
A loan against a public provident fund is a reasonable way to meet short-term financial needs. You can get a loan between the third and sixth financial year after opening the PPF account. Below are the specifications of the loan against the public provident fund scheme in India-
The maximum loan amount is capped at 25% of the balance at the end of the 2nd financial year preceding the year of the loan application.
- The interest rate on the loan is typically low (currently 1% higher than the Public Provident Fund interest rate), making it a cost-effective borrowing option.
- The loan must be repaid within 36 months in equal monthly installments. Failure to repay within this period incurs a penalty of 6% per annum.
- A second loan can be availed before the end of the 6th year, provided the first loan is fully repaid.
- During the loan tenure, the account holder continues to earn interest on the remaining balance of the PPF account.
Procedure to Withdraw Public Provident Fund Money
The procedure to withdraw money from a Public Provident Fund (PPF) account involves the following steps:
- Ensure that you meet the criteria for withdrawal, which typically involves the completion of 5 years from the end of the financial year in which the account was opened.
- Obtain a withdrawal form (Form C) from the post office or bank where your Public Provident Fund account is held. This form is used for partial withdrawals.
- Prepare documents such as ID proof, PPF passbook, and filled withdrawal form. Nomination details may also be required.
- Submit the completed withdrawal form and supporting documents at the post office or bank branch where your PPF account is maintained.
- The authorities will verify your application and documents. For partial withdrawals, ensure the purpose specified meets the criteria set by the Public Provident Fund rules.
- Once verified, the withdrawal amount will be credited to your bank account or issued as a cheque, depending on the facility available at the post office or bank.
- If you intend to close the PPF account entirely, submit a closure form (Form C) after maturity (i.e., after completion of 15 years from the end of the financial year the account was opened).
- Note that withdrawals from a PPF account are tax-free, ensuring that the entire amount withdrawn, including interest, is exempt from income tax.
Following these steps ensures a smooth process for withdrawing funds from your PPF account, whether for partial withdrawals during the lock-in period or full closure upon maturity.
Forms for Public Provident Fund Account
The PPF account has different forms labeled A to H; each used for specific purposes. These forms ensure efficient management of investments and compliance with PPF scheme rules, enhancing convenience for account holders.
In summary, the Public Provident Fund offers a safe and tax-friendly way for people to save money for the long term. It provides reasonable interest rates, lets you take out money when needed, and gives tax advantages, making it a popular option for those aiming to build a secure financial future.
FAQs About PPF
What is PPF?
PPF stands for Public Provident Fund, a long-term savings scheme offered by the Government of India to help individuals save for retirement.
Who can open a Public Provident Fund account?
Any Indian resident, including minors through guardians, can open a Public Provident Fund account.
What is the tenure of a PPF account?
The initial tenure of a PPF account is 15 years, which can be extended in blocks of 5 years indefinitely.
What are the tax benefits of investing in the Public Provident Fund?
Investments in Public Provident Fund qualify for tax deductions under Section 80C of the Income Tax Act. Interest earned and maturity proceeds are also tax-free.
Can I withdraw money from my PPF account before maturity?
Partial withdrawals are allowed from the 7th year onwards for specific purposes, subject to certain conditions.
What is the interest rate on the Public Provident Fund?
The government sets the interest rate on PPF, which is compounded annually. It is announced quarterly.
Can NRIs open a Public Provident Fund account?
No, NRIs are not eligible to open a new PPF account. However, those who opened accounts while they were residents can continue until maturity.
How can I open a PPF account?
You can open a PPF account at designated banks or post offices by filling out an application form and providing the necessary KYC documents.
Can I take a loan against my PPF account?
Yes, loans can be availed against Public Provident Fund balances from the 3rd year up to the 6th year of account opening, up to certain limits.
What happens to my PPF account after maturity?
After maturity (15 years), you can withdraw the entire balance or extend the account in blocks of 5 years without making fresh contributions.
