The key to wealth creation lies in the practice of saving regularly and systematically. The Public Provident Fund (or the PPF) is one such long-term investment option that would suit investors of all types. Scoring high on safety, by virtue of it being government backed, this wonderful option comes with tax benefits, loan options and a low maintenance cost.
Scheme Availability
A PPF account can be opened at anytime during the year. It is open all through the year.
Who can open a PPF account?
A PPF account can be opened by an individual on his own behalf or on behalf of a minor of whom he is the guardian or on behalf of an association of persons or a body of individuals. An individual can open only one account for himself.
Mode of Operation
- Single
- Minor with parent/guardian
Returns
Interest 8.6% p.a. (earlier 8.0% p.a.) (Compounded annually) is credited to the PPF account at the end of each financial year.
The interest rate in your PPF account is calculated on the lowest balance between the fifth and the last day of the month. So to maximize your earnings, try making deposits between the 1st and the 5th of the month. Interest is compounded annually and credited on 31st of March each year.
Investment Limitation
Min Amount: ` 500/- and additional investment in multiples of ` 5/-
Max Amount: ` 1,00,000/- (earlier ` 70,000)
You could vary the amount and the number of installments, as per your convenience, provided you do not exceed 12 installments in one financial year.
Tax Benefits
Deposits in a PPF account qualify for a deduction under section 80C. Furthermore, the entire maturity amount including the interest is non-taxable. Not only is the interest earned tax free, PPF deposits are exempt from wealth tax too.
Tenure of Investment
15 years from the date of initial investment with a block of 5 years there-after up to a max of 30 years incl. 15 years.
Maturity
The PPF account matures after 15 years. One can then exercises on option of continuing the account for an additional block of 5 years or close it.
Continuing PPF after the 15 year period
PPF account holders have an option of extending their accounts after the 15 year tenure with or without further subscription, for any period in a block of 5 years. The balance in the account will continue to earn interest at normal rate as admissible on PPF account till the account is closed. In case the account is extended without contribution, any amount can be withdrawn without restrictions. However, only one withdrawal is allowed per year. If you continue the account after 15 years, with continued deposit, withdrawal up to 60 per cent of the balance at the beginning of each extended period (block of five years) is permitted
Withdrawal
The entire amount in your account could be withdrawn only on maturity. However, in times of financial crises partial withdrawals are permitted subject to certain ceiling limits. You could withdraw once a year, from the 7th year onwards. Such withdrawals, must not exceed, 50% of the balance at the end of the fourth year, or 50% of the balance at the end of the immediate preceding year, whichever is lower, less the amount of loan if any.
Loans
You could take a loan on your PPF deposit, subject to certain terms and conditions. The first loan could be taken from the third year onwards till the sixth year. Up to a maximum of 25% of the balance at the end of 2nd immediately preceding year would be allowed as loan. Such withdrawals are to be repaid within 24 months. Rate of interest charged on the loan would be 2% more than the PPF interest rate prevailing then. A second loan could be availed as long as you are within the 3rd and the 6th year, and only if the first one is fully repaid. Also note that once you become eligible for withdrawals, no loans would be permitted. Inactive accounts or discontinued accounts are not eligible for loan.
Transfer
The account can be transferred at the request of the subscriber from one office to another, including from Bank to Post Office and vice- versa all over the country.
Nomination
Nomination can be done at the time of opening the account or during the tenor of the account.
A subscriber may nominate one or more persons to receive the amount standing to his credit in the event of his death. No nomination can, however, be made in respect of an account opened on behalf of a minor.
In the event of the death of the subscriber, the amount standing to his credit can be repaid to his nominee or legal heir, as the case may be, even before the expiry of fifteen years. Legal hairs can claim the amount up to Rupees One Lakh without production of succession certificate after observing certain formalities.
Payment Default
If the PPF account-holder fails to deposit the minimum ` 500 in a given financial year, the account is considered as discontinued but the interest will continue to accrue and be paid at the end of the term. Loans and withdrawals are not allowed. This account can be revived on payment of a fee of ` 50 for each year of default, along with the arrears of subscription of ` 500 for each such year
Termination of an Account
No PPF account can be terminated before its completion. However, if requests for premature closure of PPF accounts and refund of deposits from the subscribers are genuine in nature, such cases can be dealt with under Rule 13 of the scheme.
Since no withdrawal is permissible before the expiry of four years from the end of the year in which the account was opened vide para 9 (withdrawal) of the scheme, the request for termination or closure of accounts can be considered only after the expiry of the said period. For example, the request for premature closure of accounts opened in 2010-11 can be considered only after 1.4.2016. Such requests may, therefore, be forwarded to the Ministry of Finance along with the following information -
- Name and address of the account holder
- Account number
- Date on which the account was opened
- Loans availed of if any from the account with dates and position regarding repayment
- Satisfactory reasons given for the request and evidence in support thereof
- Designation and address of the income tax authority under whose jurisdiction the subscriber falls
- Any other information relevant to the request.
Free from any Attachment
A PPF account is free from any attachment under any order or decree of a court in respect of any debt or other liability incurred by him.
PPF for NRIs
Non Resident Indians may also open a PPF account out of the funds in the applicant's non-resident account in India in banks subject to the following conditions -
- The account is marked as non-resident account.
- All credits therein or debits thereto are made subject to the same regulations as are applicable to non-resident account.
TIPS FOR INVESTING
- Best for long term investment.
- Apart from a Post Office, a PPF account can also be opened in SBI and its associates and other select nationalized banks.
- The most popular tax saving instrument where deposits in a PPF account qualify for a deduction under section 80C. Furthermore, the entire maturity amount including the interest is non-taxable. Not only is the interest earned tax free, PPF deposits are exempt from wealth tax too.
- A PPF account cannot be attached by the Govt. or any court of law or through any decree.
- To maximize your interest earnings, try making deposits between the 1st and the 5th of the month.
