A Complete Guide to Public Provident Funds

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Overview

The National Savings Institute of the Finance Ministry established the Public Provident Fund (PPF) in 1968. Its primary goal was to mobilise small savings in the form of investments and provide returns on those savings. The PPF schemes provide an enticing rate of interest and you do not have to pay any tax on the interest rate returns.

It is also known as a savings-cum-tax-savings investment vehicle because it allows you to build your retirement corpus while saving on annual taxes under Section 80C.

If you are looking for a safe way to invest while saving taxes, this is the best option. The minimum amount required to open a PPF account is Rs.500, and the maximum amount allowed in a fiscal year is Rs.150,000. You can deposit the funds in 12 instalments each month. It has a maturity period of 15 years, but it can be extended for an additional 5 years within one year of maturity.

Public Provident Fund Scheme

The following are the criteria that will determine your eligibility to invest in PPF and open an account:

  • To open a PPF account, one must be an Indian resident.
  • You can only have one PPF account.
  • PPF accounts opened by NRIs while they were Indian residents have a time limit for operation, which is 15 years. Furthermore, there is no option for extension.
  • Even a minor can open a PPF account if they have proof of legal age.
  • Following the passage of a specific law on May 13, 2005, Hindu Undivided Families (HUF) have been denied the ability to open PPF accounts. Accounts that were open prior to this date were allowed to run until the maturity period of 15 years.

Documents needed to open a PPF account

Previously, opening a PPF account was only permitted in Nationalized or government banks. However, private banks have begun to offer the PPF scheme.

When you open a PPF account, you must provide a number of documents. The following is a list of documents that must be submitted:

  • You can obtain the PPF account opening form either online or at the specified bank branch. You can find a list of PPF forms for account opening, withdrawals, and loans here.
  • Address proof may consist of a telephone bill, an electric bill, a ration card, or an Aadhar card.PAN card, Voter ID card, Aadhar card, Driving licence, and Passport Nomination form 2 passport-sized photographs of the account holder

Note: In the case of minors, the birth certificate will be required as proof of age.

The following are the main characteristics of PPF schemes:

  • Account duration- The account duration, also known as the maturity period, is 15 years. However, the account's duration can only be extended for another 5 years.
  • Deposit methods- Payment contributions to a PPF account can be made online via net banking, debit or credit card, or by demand draught, cheque, or cash.
  • The amount required to open a PPF account- The minimum amount required to open a PPF account is R 100, with a maximum of Rs 1.5 lakhs. If the annual investment exceeds Rs 1.5 lakhs, no tax deductions can be claimed and no interest can be earned.
  • Minimum and Maximum Amounts- In a fiscal year, the minimum to maximum investment ranges from Rs 500 to Rs 1.5 lakhs. The maximum number of instalments allowed in a year is 12.
  • Deposit Frequency- At least one deposit must be made once a year for 15 years.
  • Loan against a PPF account- Loans against a PPF account are available between the third and fifth fiscal years following the date of account opening. The loan amount can be up to 25% of the investment made until the end of the second fiscal year. The loan can also be obtained after the sixth fiscal year. However, if you want to get a second loan, you must first pay off the first one.
  • Opening a PPF account is safe because all PPF accounts offer guaranteed returns, capital protection, and are risk-free because PPF policies are managed by the Government of India. As a result, the risk of opening a PPF account is low.

Benefits of PPF account

By opening a PPF account, you will gain certain benefits. These advantages are as follows:

  • One of the major benefits of a PPF account is that you can claim tax deductions on investments made in the PPF account up to Rs 1.5 lakh under Section 80C.
  • Risk-free interest rate- You can get up to 8% interest rate, which is reasonable in comparison to other schemes. It has been proven to be a good 15-year long-term investment.
  • Compounded interest rate- Your interest is paid at the end of the fiscal year, which is on March 31st of each year. In this account, the interest rate is compounded annually.
  • Low investment token- It does not require a high-priced investment that you must contribute to your PPF account each year.
  • Withdrawal facility- After completing 7 fiscal years in the PPF scheme, you can also take advantage of a partial withdrawal facility.

PPF Withdrawal Procedure

From the end of the first year's subscription to the end of the fifth fiscal year, a withdrawal of up to 50% of the balance in the PPF account is permitted. In addition, each fiscal year allows for only one partial withdrawal. Let us illustrate with an example: 'A' opened a PPF account on January 25, 2012. In this case, 'A' will be permitted to withdraw a portion of the funds only from the fiscal year 2017-2018.

Amount Eligible For withdrawal

The total amount available for withdrawal is less than the sum of either of them-

  • Prior to the current year, 50 percent or half of the PF account balance at the end of the previous fiscal year.
  • Prior to the current year, 50 percent or half of the PPF account balance at the end of the previous fiscal year.

However, the account holder is only permitted to withdraw funds once per year. When the 15-year term is up, the account holder has the option of withdrawing the entire amount as well as the interest earned.

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