Public Provident Fund - PPF

What is a PPF account?

Public Provident Fund (PPF) scheme is a long-term investment option that offers an attractive rate of interest and returns on the amount invested. The interest earned and the returns are not taxable under Income Tax. One has to open a PPF account under this scheme and the amount deposited during a year will be claimed under section 80C deductions.

Interest Rate - 7.1% per annum.

Minimum Investment Amount - Rs.500

Maximum Investment Amount - Rs 1.5 lakh per annum.

Tenure - 15 years

Risk Profile - Offers guaranteed, risk-free returns

Tax Benefit - Up to Rs.1.5 lakh under Section 80C

Features of PPF account

Tenure: The PPF has a minimum tenure of 15 years, which can be extended in blocks of 5 years as per your wish.

Investment limits: PPF allows a minimum investment of Rs 500 and a maximum of Rs 1.5 lakh for each financial year. Investments can be made in a lump sum or in a maximum of 12 instalments.

Opening balance: The account can be opened with just Rs 100 a month. Annual investments above Rs 1.5 lakh will not earn interest and will not be eligible for tax savings.

Deposit frequency: Deposits into a PPF account have to be made at least once every year for 15 years.

Mode of deposit: The deposit into a PPF account can be made either by way of cash, cheque, demand draft (DD) or through an online fund transfer.

Nomination: A PPF account holder can designate a nominee for his account either at the time of opening the account or subsequently.

Joint accounts: A PPF account can be held only in the name of one individual. Opening an account in joint names is not allowed.

Risk factor: Since PPF is backed by the Indian government, it offers guaranteed, risk-free returns as well as complete capital protection. The element of risk involved in holding a PPF account is minimal. As the returns from PPF accounts are fixed, they are used as a diversification tool for the investor’s portfolio.

Tax benefit: The PPF interest and maturity amount are tax-free under section 80C of the Income Tax Act, 1961.

Partial withdrawal: PPF amount can be withdrawn partially from the seventh financial year onwards.

How to open a PPF account?

A PPF account can be opened with either a Post Office or with any nationalized bank like the State Bank of India or Punjab National Bank, etc. These days, even certain private banks like ICICI, HDFC and Axis Bank among others are authorized to provide this facility.

Tax benefits of investing in PPF

PPF is one investment vehicle that falls under the Exempt-Exempt-Exempt (EEE) category. This, in other words, means that all deposits made in the PPF are deductible under Section 80C of the Income Tax Act. However, it should be noted that the maximum contribution in PPF cannot exceed Rs.1.5 lakh in one financial year.

How much money can be withdrawn from a PPF account?

You can withdraw the money partially after completing seven years from the date of opening the account. However, you can only withdraw up to 50% of the total account balance at the end of the fourth year from the date of opening.

Can you close PPF account before maturity?

PPF account can be closed 5 years after the account is opened in special circumstances such as life-threatening sickness faced by the account holder or dependents, paying for higher education or change in the residential status.