PPF or Public Provident Fund – Concept, Features, Interest, Tax, Process & more
Last Updated Date: Nov 17, 2022One of the most popular investment schemes among investors is PPF or Public Provident Fund.
It is prominent mainly because of it offers a plethora of investor-friendly features and excellent benefits.
The scheme is widely prevalent among individuals who wish to earn stable incomes. The main aim of opening a PPF account is the proper safeguarding of the principal amount.
The Indian government regulates it, so you don’t have to stress much about it. Above all, the scheme is tax-free, having a tenure of 15 years.
Investors can start saving just by depositing Rs.500. Every quarter the government decides and pays the interest.
The scheme was introduced back in 1968. Schemes’ objective is to mobilize small savings in investment forms. In other words, the scheme is savings-cum-tax savings investment tool.
It allows the investor to build a retirement corpus, and you can also save on your annual taxes.
If you are looking for a safe investment vehicle that not only saves your taxes but also earns a return, then PPF is for you.
About PPF Account or Public Provident Fund Account
Ideally, a Public Provident Fund account is a long term investment tool that offers an attractive return.
Under the income tax, both the interest and principal amount are eligible for tax exemption.
The scheme is ideal for people who have a low risk-taking appetite.
As the government backs the scheme, one can get fixed returns. The scheme aims to protect the financial needs of the countrymen.
The market volatility and funds don’t go hand in hand, so that’s a great thing about the scheme.
Investors can choose to invest in PPF accounts to diversify their investment portfolio. Hence, you can get stable investment returns by investing in PPF accounts.
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Features of PPF Account
Investment Tenure – The investment account has a tenure of 15 years. Investors are not eligible to withdraw funds entirely before that. If you want, you can also extend the lock in period by five years.
Minimum and maximum interest amount – Rs.500 is the only minimum investment amount investors need to contribute.
On the other hand, Rs.1.5 lakh is the maximum investment amount investors need to contribute in a year.
Taxation – The scheme is eligible for the Exempt-Exempt-Exempt category under tax policy. It means that both principal and maturity amount is eligible for tax exemption.
Loan against PPF – After the 3rd financial year and till the end of the 6th financial year, a PPF account holder can take a loan.
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Who can Open a PPF account?
Only residents of India are eligible to open a PPF account. Parents or guardians are also eligible to open an account on behalf of minors.
Non -residential individuals are not qualified to open a PPF account. But any existing account can be active until maturity, but they cannot avail the extension of tenure.
You cannot open multiple or joint statements at the same.
Interest on Public Provident Fund Account
The central government decides the interest payable under the Public provident fund scheme.
As compared to regular accounts maintained by several commercial banks across the country, the scheme aims to offer higher interest.
Currently, the scheme provides a 7.9% interest. The government updates the scheme quarterly.
How to open a PPF or Public Provident Fund Account?
You can either choose an online or offline process to open a PPF account.
Individuals can choose any procedure, but they have to ensure that they meet the eligibility criteria. You can activate the PPF online or by visiting one of the branches of the bank.
Some of the documents required to open a PPF account:
- KYC documents help in the identity verification of the individual. It includes Aadhaar Card, Voter ID card, or Driving License.
- PPF account opening form A is also mandatory. You can also obtain it from any bank.
- Address proof
- Pan card
- Passport size photograph of the investor
- Nomination form E – you can get it from any authorized bank.
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Tax benefits under PPF Account
The income tax exemptions are available under the PPF account. Under section 80, C of the income tax act, you can claim the entire value of the investment.
But you need to know that the total principal amount must not be more than Rs.1.5 lakh.
The interest accrued under this account is also eligible for tax exemptions. Thus, the scheme is attractive to a plethora of investors in India.
About PPF Extension
Investors can choose to extend the PPF account tenure as long as they want to, but specifically, it is by five years.
The term gets an automatic extension even if investors don’t wish to withdraw funds from their accounts.
The account is most likely to earn the interest as per the rate applicable, and the balance also accumulates accordingly.
If you want to withdraw funds from your PPF account, then you can either do it partially or entirely. You need to submit Form C to the respective bank branch.
Additionally, you can download the withdrawal form from the official portal.
The different sections of the form include:
- Under the first section, you need to declare your PPF account number. Additionally, you also need to mention the amount you want to withdraw. Besides this, you also need to mention the tenure since the time of the account opening.
- Under the second section, you need to enter some details, including the date of account opening, the amount accumulated in the scheme. It can also include the amount sanctioned under the scheme.
- Under this last section, you need to fill in some required details by banks.
Investors can get money through a demand draft or cheque. It is essential for investors to enclose a copy of PPF’s passbook along with the application form.
Unlike other schemes, you cannot withdraw money online. Thus, you can only visit the banks offline and submit the application to withdraw funds from your PPF account either partially or fully.
How to check your Public Provident Fund balance?
You need to keep track of the PPF account as it allows you to learn about the amount of interest accumulated in a year.
The finance ministry prescribes the interest rate under the scheme, and it doesn’t change throughout the tenure. Each year the interest rate gets accumulated.
You can gauge the corpus by checking the PPF balance regularly. After five years, you can make partial withdrawals.
When you keep track of the account balance, you can have a clear idea about the amount you can withdraw.
Against the available balance, you can also avail of a collateral free loan. From the 3rd and 5th year, the collateral loan is available. Individuals can avail at least 25% of the balance available in the 2nd year.
You can check the PPF account balance either online or offline. The best part is you can check the balance online anytime as these facilities are available 24*7.
But the online option is only available for those investors who have a PPF account in a bank.
Conclusion – PPF or Public Provident Fund
Thus, the Public provident fund scheme is a fantastic investment vehicle for investors looking for financial stability.
By investing regularly, you can increase the corpus of the PPF account. Additionally, you can also consider auto-debit facilities from your bank to transfer their funds regularly.
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