PPF - Public Provident Fund
Public Provident Fund, is a popular investment scheme in India that offers individuals a safe and reliable way to save for their future. Let's see understand briefly.
What is Public Provident Fund?
PPF, or Public Provident Fund, is a popular investment scheme in India that offers individuals a safe and reliable way to save for their future. It is a government-backed savings scheme introduced by the National Savings Institute of the Ministry of Finance in 1968, aimed at encouraging long-term savings and providing financial security.
Imagine PPF as a financial fortress where you can build your wealth brick by brick. It is open to all Indian residents and offers attractive interest rates, which are determined by the government each year. The interest is compounded annually, which means your money not only earns interest, but also returns interest! Isn't it incredible?
The beauty of PPF lies in its tax benefits. Contributions made to a PPF account are eligible for tax deduction under Section 80C of the Income Tax Act. It is like a magical wound that helps you reduce your tax liability while saving for your future.
The tenure of a PPF account is 15 years, but it can be extended indefinitely in blocks of 5 years. This gives you the flexibility to continue your savings journey for as long as you want. Also, PPF comes with a lock-in period of 5 years, after which you can make partial withdrawals or take a loan against your PPF balance.
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PPF – Key Information | |
interest rate | 7.1% per annum. |
Minimum Investment Amount | Rs. 500 |
Maximum investment amount | ₹ 1.5 lakh per year. |
Duration | 15 years |
Risk Profile | Offers guaranteed, risk-free returns |
tax benefits | Up to Rs. 1.5 lakh under section 80C |
One of the most important asset classes to consider is fixed income, which is considered a safe option for any investment portfolio. Within this asset class, the Public Provident Fund (PPF) has been a staple for investors since 1968, when it was first launched in India. If you are wondering, "What is PPF?" - you are in the right place. It is a unique instrument as it comes with several benefits and enables you to build a retirement corpus through the power of compound interest.
Importance of Public Provident Fund:-
Public Provident Fund (PPF) holds immense significance in the field of personal finance for individuals in India.
First, PPF provides a rock-solid foundation for your long-term financial goals. It acts as a bulwark against unforeseen circumstances by inculcating the habit of disciplined savings. By allocating a portion of your income to a PPF account, you begin the journey to financial security and stability.
One of the major benefits of PPF is its tax benefits. Contributions made to a PPF account are taxable under the Income Tax Act. Section 80C: You are eligible for tax deduction under the Income Tax Act. This means that you can reduce your taxable income by investing in PPF. It is like a financial shield that helps you optimise your tax liability while building wealth.
Moreover, PPF interest rates are determined by the government and are often higher than those offered by other fixed-income instruments. This makes PPF an attractive option for growing your savings over time. The interest earned on PPF is compounded annually, allowing your money to work hard for you.
Another notable aspect of PPF is its long tenure. With an initial lock-in period of 15 years, extendable in blocks of 5 years, PPF enables you to build a long-term investment mindset. It promotes financial discipline and forces you to think strategically about your future needs and aspirations.
Features of Public Provident Fund:-
1. Compounded Annual Interest: Interest earned on PPF is compounded annually, thereby increasing your wealth exponentially over time.
2. Extension Facility: PPF can be extended from time to time in blocks of 5 years, giving you the flexibility to continue your savings journey.
3. Attractive interest rates: PPF offers competitive interest rates, which are often higher than other fixed income instruments, helping your savings grow.
4. Minimum investment: PPF allows a minimum investment of Rs. 500 per year, making it accessible to a wide range of individuals.
5. Exemption from wealth tax: The accumulated balance in the PPF account is exempt from wealth tax, further increasing its appeal.
6. Portable across locations: PPF account can be transferred to various authorised banks or post offices, ensuring convenience to the account holder.
Quick facts worth knowing about PPF
● Eligibility: Only Indian residents can open a PPF account
● Tenure: 15 years (can be extended any time in 5-year blocks)
● Minimum Investment: ₹ 500 per year
● Maximum investment: ₹ 1.5 lakh per year
● Tax benefits: Up to ₹ 1.5 lakh per annum under section 80C
● Interest Rate: 7.1 %
● Category of Taxation: Exempt-Additional-Additional-Additional
● Number of accounts per person: One
Benefits of a PPF account:-
A unique aspect of PPF is that it is completely tax-exempt. In other words, when you withdraw funds from your PPF account, you will not have to pay any tax on it.
- PPF interest rate is one of the highest for a fixed interest instrument at 7.1%, and it also comes with a tax benefit from the year. On the other hand, not all fixed deposits come with tax benefits, and the maturity amount is taxable once it reaches your savings account.
- Interest in PPF is compounded annually.
- You also get the benefit of paying up to ₹500 per year as per your convenience and you can pay up to ₹1.5 lakh in installments as per your convenience.
- You can claim up to ₹1.5 lakh in tax deduction per year under Section 80C of the Income Tax Act.
- PPF is one of the safest investments, as it is backed by the government and is not linked to market instruments. Market volatility does not affect the value of your PPF account balance, and it offers guaranteed returns.
- You can take a loan against your account between the third and sixth years for a maximum period of three years. The loan amount cannot exceed 25% of the total available amount. If the first loan is fully repaid, the second loan can be taken before the sixth year.
- After maturity, you can choose to extend your tenure in blocks of five years. There is no upper limit, and you can continue to extend it indefinitely once the block matures.
- Account holders are allowed to nominate one person. This is very important so that your next child or someone in your name gets access to your account in case of your death or any other unfortunate circumstance.
Any resident Indian above 18 can open a PPF account and receive interest on their balance, even if they do not earn an income. However, those without income will not be able to avail the tax deduction benefits.
PPF Account Eligibility:-
Indian citizens residing in the country can open a PPF account. Minors can hold a PPF account operated by their parents. Non-resident Indians cannot open new PPF accounts, but existing accounts remain active till the maturity of the term without the option of extension up to 5 years available to Indian residents.
Guide to opening your PPF account
● Step 1: Log in to your bank account through Internet Banking or Mobile Banking.
● Step 2: Select the 'Open PPF Account' option.
● Step 3: Select 'Self Account' if it is for you or if opening on behalf of a minor.
● Step 4: Fill the required details in the application form.
● Step 5: Enter the desired annual deposit amount.
● Step 6: Submit the application and enter the OTP sent to your registered mobile number.
● Step 7: Your PPF account will be created instantly! The account number will appear on the screen, and a confirmation email will be sent to your registered email address.
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Important documents for opening a PPF account:-
To open a PPF (Public Provident Fund) account, you will need the following important documents:
Application Form for New Account: This form should be duly filled out with accurate and complete information.
KYC documents: You will need to submit valid KYC (Know Your Customer) documents, which can include any of the following:
● Aadhar Card
● Voter ID
● Driving License
● PAN Card
● Passport
Proof of residential address: You will need to provide a document that serves as proof of your residential address, such as:
● Utility Bills (Electricity Bill, Telephone Bill, etc.)
● Bank Statement
● Rent Agreement
Nominee Declaration Form: You need to fill out a form to declare the nominee for your PPF account.
Passport size photo: You must have a recent passport-size photo for the account opening process.
When to deposit money in your PPF account?
To ensure timely deposits in your PPF (Public Provident Fund) account, consider the following:
1. Annual Deposit: Aim to deposit a minimum of Rs. 500 and a maximum of Rs. 1.5 lakh in your PPF account each financial year. Depositing the entire amount of your desired contribution within a financial year yields greater benefits.
2. Optimal timing: It is advisable to deposit money in your PPF account at the beginning of the financial year, ideally on April 1. This allows your investment to earn interest throughout the year. However, you can deposit funds at any time during the financial year to keep your account active.
3. Deposit period: The deposit deadline is usually April 5 every year. Making the deposit before this date ensures that your contribution is counted for the current financial year.
Will interest rates change?
The Ministry of Finance sets interest rates on all government-backed instruments each year. From 2009 to 2019, the PPF interest rate increased by 8.7%. As of 2022-2023, the PPF interest rate is set at 7.1% per annum, compounded annually.
How much can you earn?
Investors who start investing early and max out their accounts every year can reap the highest benefits from this interest. By using a PPF calculator, you can get an estimate of potential earnings. However, if you were to invest up to INR 1.5 lakhs per year for 15 years, with an interest rate of 7.1%, you could receive a non-taxable maturity amount of INR 40 plus lakhs. On the other hand, if you were to invest only INR 500 per year, then the maturity amount would be INR 13,561.
Will the interest rates in the Public Provident Fund change?
Yes, Public Provident Fund (PPF) interest rates are subject to change. PPF interest rates are determined by the Government of India and are subject to periodic revisions. In the past, interest rates have been revised on an annual basis. These rates can be affected by various factors such as prevailing economic conditions, inflation, and government policies.
How much can you earn from PPF?
The amount you can earn from a PPF (Public Provident Fund) account depends on several factors, including the interest rate and the amount you deposit.
Essentially, the PPF interest rate is determined by the government and is subject to change on an annual basis. Historically, interest rates have ranged around 7% to 8% per annum. It is important to check the current interest rate announced by the government for a specific financial year.
To calculate the income from a PPF account, interest is compounded annually. Interest is calculated on the minimum balance between the 5th and the last day of each month.
PPF Withdrawal Rules:-
1. Get the withdrawal application form (Form 3/Form C) from the bank or post office where your PPF account is held.
2. Complete the application form by providing the required details.
3. Submit the filled application form to the concerned branch of the bank or post office where your PPF account is maintained.
What is Form C?
To withdraw funds from your PPF (Public Provident Fund) account, you need to complete Form 3/Form C, which consists of three sections:
Section 1: Declaration section
● Provide your PPF account number and the amount you want to withdraw.
● Mention the number of years elapsed since the opening of the account.
Section 2: Office Use Section
● Details such as PPF account opening date, current balance, date of last withdrawal, available withdrawal amount, approved withdrawal amount and date and signature of authorised staff are included.
Section 3: Bank details section
● Direct credit or cheque, or demand draft issued requires information about the recipient bank.
● Attach a copy ofthe PPF passbook with the application.
By completing these sections correctly and including the required documents like a copy of the passbook, you can start the withdrawal process for your PPF account.
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What are the benefits of investing in PPF in terms of tax savings?
PPF falls under the Exempt-Exempt-Exempt (EEE) category. This means that:
- You can avail a tax deduction of up to ₹1.5 lakh per financial year under Section 80C of the Income Tax Act.
- The interest and maturity amount are also exempt from taxes.
Tax exemption is also given on partial withdrawal from the PPF account.
Loan rules against your PPF
Ideally, you should take a loan against your PPF only if the amount is small and you are in a position to repay it quickly:
- It should not exceed 25% of the amount standing to your PPF account at the end of the second year from the year in which you applied for your loan.
- You have to repay the loan within three years.
- With PPF, any loan taken against the account is charged at 1% interest irrespective of the amount.
- One disadvantage of taking a loan against your PPF account is that it does not earn any interest until the loan is fully repaid.
Difference between EPF vs PPF
EPF (Employees Provident Fund) is a retirement savings scheme for salaried employees, managed by the Employees Provident Fund Organization, while PPF (Public Provident Fund) is a long-term investment scheme available to both salaried individuals and self-employed individuals, managed by the government. Both offer tax benefits and compounding interest, but EPF is employer-run while PPF is individually run .
How to check PPF account balance online?
● To check your PPF (Public Provident Fund) account balance online, follow these steps:
● Visit the website of the bank or post office where your PPF account is held.
● Look for the “PPF Account” or “Account Balance” section on the website.
● Click on the relevant link or option to access PPF account services.
● Enter log-in credentials such as username and password to log in to your account.
● Once logged in, navigate to the Account Summary or Account Details section.
How to close a PPF account?
As per PPF guidelines, you can withdraw your PPF balance completely only after the account matures in 15 years. You can withdraw the entire amount and then close the account after completing this period.
However, there are some unique circumstances under which a PPF account can be closed prematurely. For instance, if the account holder, their parents, spouse or dependent children are diagnosed with a terminal illness, these are grounds for premature closure. Another situation is if the account holder wishes to avail the funds for higher education. In both cases, the relevant documents need to be submitted.
Conclusion
PPF is a favourite long-term savings scheme among a wide range of investors. Even if you have an EPF account with your employer, you can open a PPF account and avail of all the tax and interest benefits. From a home builder to a gig worker, everyone can open an account and start their savings journey.
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