Public Provident fund, PPF account, how to open!
Create corpus with tax saving, open PPF and get best interest rates, Read this article for complete information.
Public Provident Fund: Saving is a word which is always there in our mind to accomplish our dreams. But in the present scenario, another prospect of saving is to save tax which is applicable on our earnings. There are many ways in which you can invest to reduce income tax. One and most popular way is to open a Public Provident fund (PPF) account.
What is a Public Provident Fund (PPF) account?
The full form of PPF is Public Provident Fund scheme. PPF is a government backed long-term saving-cum-investment product which has no-risk and provides good returns. PPF is a corpus which is highly beneficial when one retires. The amount invested, interest earned, and maturity amounts are entirely tax-free. Investor can invest in a lump sum or maximum in 12 instalments.
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Why should I open a PPF account? What are the benefits of a PPF account?
1. Interest Rate:
PPF offers one of the highest interest rates on Section 80C deposits which means the amount deposited in the PPF account is tax free up to Rs. 1,50,000 Lakhs per annum and you can deposit a minimum amount of Rs. 500/- per year. The Finance Ministry reviews the interest rate every quarter. Presently the interest rate is 7.10% p.a.
2. Tax Benefit:
PPF falls within the Exempt- Exempt- Exempt (EEE) category of taxation. Thus, all deposits made in the PPF are eligible for tax deductions under Section 80C of the Income Tax Act, 1961. The accumulated amount, interest earned, and maturity amount is also tax-free on withdrawal. Read more on PPF Tax benefits.
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3. Compounding benefits:
The funds you deposit every year earn you interest. With every passing year, your interest income increases due to growing deposits, which means you can earn compounding benefits. You can also calculate the corpus you will get with the link. https://www.etmoney.com/tools-and-calculators/ppf-calculator.
For example if you start investing at the age of 30 years Rs. 1.50 Lakhs per year, at the age of 60 years you will get Rs. 1.55 Cr. which is a very good amount.
4. Fulfilment of urgent needs of fund:
One of the most beneficial features of the Public Provident Fund (PPF) account is that you can take a personal loan against the balance in the PPF account. This can be very handy, specifically when the loan is availed for a short duration. The interest rate offered on the loan is also very competitive.
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How can I withdraw money before maturity or partially? PPF Premature Withdrawal Terms and conditions!
At the end of the 6th year of investment, one can do Partial withdrawals. Furthermore, you make withdrawals only once a year, with a withdrawal limit of only 50% of the amount in the account at the end of the 4th year. There is no tax on partial/premature withdrawals from the PPF account. One can do only one partial withdrawal every financial year.
In addition to that, Form C is required to be submitted to withdraw the partial amount from the PPF account. Details such as account number, amount of money to be withdrawn, etc. are to be mentioned in the form. In case the account is in the name of the minor, there should be an additional declaration stating that the amount is required for the use of a minor child who is still a minor and is alive.
Know about Public Provident Fund Partial withdrawal only allowed on three grounds:
- Life-threatening ailment or serious diseases faced by account holder/spouse/children
- Children’s or account holder’s higher education: Documents confirming admission in a higher education institution have to be produced
- Change in resident status of account holder (becoming an NRI)
A penalty is levied in the form of a 1% reduction in the interest applicable for the period for which the account is held
| PPF Withdrawal | Time Period | Grounds | How much can be withdrawn? |
| On Maturity | After 15 years | Any | Full Amount |
| Partial Withdrawal | After 6 years | Any | 50% of the balance |
| Premature Closure | After 5 years | Medical, Education | Full Amount |
The account will be extended by default, If you do not withdraw your money from the account and close it. The account continues to earn interest on extension, on its accumulated balance.
To conclude, PPF is a very beneficial tool which can enable you to plan for retirement right from when you start earning. You can create a huge amount by regular investment which is completely tax free and can fetch several other benefits.
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Some Important links
- https://www.nsiindia.gov.in/InternalPage.aspx?Id_Pk=55
- https://epfindia.gov.in/
- https://dea.gov.in/budgetdivision/ppf
- https://web.umang.gov.in/landing/department/epfo.html
- https://www.india.gov.in/official-website-employees-provident-fund-organisation
- https://en.wikipedia.org/wiki/Public_Provident_Fund_(India)
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