Public Provident Fund (PPF)
The Public Provident Fund (PPF) is a long term investment decision which usually serves as a retirement corpus. It is an investment option which is backed by the Government of India. It was presented in India in 1968 in the Public Provident Fund Act. It is one of the safest tax savings investment options with minimal risk and returns guaranteed.
PPF Account – Unknown Facts
Even though PPF account is a very popular tax savings instrument, people are unaware regarding many of its aspects. Listed below are 10 unknown facts regarding PPF:
- PPF Account Can Be Opened With Initial Minimum Deposit of Rs. 100
Only Rs. 100 is essential to start a PPF account. SBI and few other nationalised banks provide the PPF service. So, PPF account can be easily opened in any of these banks. One can also open PPF account through internet banking online or at any post office. Guardians/Parents can open PPF accounts in names of minors too. Only 1 account per person is permitted.
- Only Indian Citizens Are Eligible to Open PPF Account
NRI’s are not eligible to open a new PPF account. NRIs are not eligible to extend their existing account too. The existing accounts need to be closed once an individual becomes an NRI.
- Joint Accounts Not Permitted
One cannot open a PPF account in joint holding of the account. Each PPF account can be opened in a single name only
- Deposits in PPF
The deposits to a PPF account must be made in the range of Rs. 500 – Rs. 1.5 Lakh annually. The deposits can be done in lump sum or in instalments. A maximum of 12 instalments can be done annually. The PPF account is highly flexible as one can vary the number of instalments as well as the deposit amount. The PPF account gets deactivated if the minimum amount is not deposited. In case of deactivation, a penalty of Rs. 50 is charged for each year of non payment of the minimum deposit to revive the PPF account.
- Interest Calculation
Interest rate of PPF is compounded annually and gets credited on March 31 each year. Calculation of the interest rate is done on the minimum available balance in the account from the fifth of each month to the end of every month. To get the maximum PPF account benefits one should make investments to the PPF account between 1st and 5th date of every month.
- Conditions for Premature Withdrawal
PPF scheme has a lock in period of 15 years. The amount can be withdrawn from the account only after maturity of the account. In case of financial crisis, the scheme allows partial and premature withdrawal within certain limits. Premature PPF account withdrawal is possible from the 7th year from the year of opening of account. Premature withdrawals can be done only once a year. This withdrawal cannot exceed 50% of the total balance at the end of the 4th year or 50% of the balance of the immediate previous year (whichever is lower). Closing the account prematurely can be done only in case of demise.
- Multiple Tax Benefits
The PPF scheme is a tax savings instrument where the investment amount is eligible for deduction under the Section 80-C of the Income Tax Act. The key benefit of PPF account is that the entire maturity amount along with the interest earned is tax free. All withdrawals are exempted from wealth tax too.
- Loan Facility on PPF Accounts
One can avail loans too on PPF accounts. Loans can be taken between the 3rd year and the 6th year from the year of opening of account. One can get a maximum loan of 25% of the total PPF account balance available at the of the 2nd financial year immediately preceding the year of application of loan. The rate of interest on the loan will be 2% higher than the predominant PPF rate of interest. If the first loan is fully repaid, a second loan can also be availed before the 6th year from the year of opening of account.
- Maturity Date Calculation
The maturity date is fixed at 15 years from the end of the financial year in which the first deposit was made.
So, it is actually a 16-year scheme.
- PPF tenure Extension
PPF scheme is a 15-year scheme but extension of this tenure is possible with or without further subscription.
The tenure can be extended in a block of 5 years. The interest rate will continue to accrue till the account is closed. If the account tenure is extended, but no deposits are made, any amount can be withdrawn from the account without any restrictions. If one continues to make deposits in the extension period, the PPF account provides the benefit of withdrawal of 60% of the account balance at the beginning of each extended period.