PPF – Public Provident Fund

In 1968 government of India introduced Public Provident Fund (PPF). The objective of PPF is to encourage small savings in the form of investment, with a guaranteed return. PPF is a savings-cum-tax savings financial investment instrument, tax-saving comes under 80C. PPF help to save annual taxes and build a retirement corpus.

For newbie earners, PPF is an ideal and safe investment option, which provides the advantage of tax saving and guaranteed returns after the lock-in period of a minimum of 15 years. In this blog, we will cover the following questions in the mind of newbie earners.

1. What is a PPF account?
2. How to open a PPF account?
3. What is the interest rate on PPF?
4. Can I open 2 PPF account?
5. Essential features of PPF?
6. Is PPF interest the same in all banks?
7. Who is eligible to invest in PPF?
8. Loan against PPF?
9. PPF withdrawal period?
10. PPF withdrawal Procedure?
11. How many times PPF can be extended?
12. What are the tax benefits of investing in PPF?
13. Is PPF maturity amount taxable?
14. Comparison between PPF and NPS?
15. Comparison between PPF and RD?

1. What is a PPF account?

• Public Provident Fund (PPF) is a scheme introduced by the government of India for encouraging long-term investment among the newbie earners.
• Public Provident Fund (PPF) will offer an attractive rate of interest and guaranteed returns on the invested amount.
• The prime advantage of PPF is that the returns and interest earned are not taxable under Income Tax.
• One can open the PPF account through any Nationalized Bank or from the post office and easily start investing, with a minimum of 500 rupees and a maximum of up to 150000 rupees in a financial year.
• The maximum number of times of investments in a financial year is 12, hence it is ideal for investing monthly.
• After the maturity of the account, an investor can extend the tenure of the account in the blocks of five years.

2. How to open a PPF account?

Public Provident Fund account can be opened through any of the below institutions,

• Post Office.
• Any nationalized bank like SBI.
• Certainnationalized private banks like ICICI, HDFC…

Approach to a post office or a bank, who are authorized to provide PPF facility and submit the duly filled application form, along with the required KYC documents like address proof, identity proof, and signature proof.

The application form we can collect directly from their facility or download from online portals of authorized banks. Once submitted these documents, immediately you can deposit a prescribed amount as an investment.

3. What is the interest rate on PPF?

The interest rate of PPF will be decided by the Ministry of Finance, Government of India, year to year. The current interest rate is 7.1% as applicable from 1st January 2021. The interest is calculated on a monthly basis and credited into the account on March 31 of every year.

These interests will be compounded annually. The interest for every month is calculated on the basis of the lowest balance available in the PPF account during the 5th day and last day of every month. After the maturity period, i.e. 15 years, if the account is continuing, for balance amount also gets interested as long as the account is continuing.

4. Can I open 2 PPF account?

• As per the PPF rules, one can’t open more than one account.
• If someone opens a second account, the account holder will not be eligible for any tax-saving benefit or interest on the invested amount in the second account.
• The second account will have to be closed down, once it identified.

5. Essential features of PPF

Tenure: 

The minimum tenure is 15 years, and it can be extended in blocks of 5 years after completion of the 15 years.

Investment Limits: 

Maximum investment of Rs 150000 and a minimum of Rs 500 in a financial year, with a maximum of 12 installments.

Opening Balance: 

With Rs 100 one can open the account but need to invest a minimum of Rs 500 in a financial year to maintain the account.

Deposit Frequency: 

At least once a year for 15 years need to deposits into a PPF account, to maintain the account.

Tax Saving

Tax saving can claim under 80C for investments maximum up to Rs 1.5 lakh. PPF scheme comes under the EEE tax exemption category.

Mode of deposit: 

The deposit into a PPF account can be made either by online fund transfer or direct cash, cheque, DD to banks or post office.

Risk factor:

PPF is an Indian government-backed investment instrument hence it is a risk-free, guarantee returns investment. PPF will provide complete protection to capital invested and the interest earned.

Nomination: 

The nominee can be designate at the time of account opening or later. Joint account opening is not allowed in PPF.

Account closing:

PPF account cannot be closed permanently before the maturity period (15 years) unless the account holder’s demise. In the case of the demise of the account holder, the nominee can file for the closure of the account.

6. Is PPF interest the same in all banks?

As Public Provident Fund is a government scheme, the rate of interest is decided by the government and it will be the same in all banks or with the post office.

7. Who is eligible to invest in PPF?

• Any Indian citizen is eligible to open a Public Provident Fund account either in his own name or on behalf of a minor.
• A minor Indian citizen is also eligible to open the account, however, the tax-saving benefit will be based on the sum of the amount in the parent account and minor account maximum up to 1.5 lakhs.
• Hindu Undivided Families (HUFs) and Non-resident Indians (NRIs) are not eligible to open a Public Provident Fund account.

8. Loan against PPF?

• The PPF account holder is eligible to take a loan against PPF holding from 3rd year onwards.
• The maximum loan amount will be up to 25% of the 2nd year holding if applied on 3^rdyear, or 25% of the immediately preceding year.
• Once the first loan is repaid fully, the PPF account holder is eligible to take the second loan.

9. PPF withdrawal period?

• As per rule, after the completion of 15 years, only full amount withdrawal is allowed.
• In case of emergency, the scheme permits partial withdrawals after completion of the 6^th year.
• Withdrawals are permitted only one time in a financial year.
• Up to a maximum of 50% of the amount at the end of the 4th year or a maximum of 1.5 lakhs is permitted to withdraw prematurely at the time of emergency.

10. Procedure for withdrawal from PPF

Follow the following steps to partially or completely withdraw from PPF.

Step 1: Fill the withdrawal application with relevant information including the amount of money need to withdraw, account no, actual no of years completed, Bank details to which amount needed to credit.

Step 2: Submit the application to the bank or post office where the PPF account opened.

Step 3: Along with this application form enclose a copy of the PPF passbook to make the process easy.

Step 4: After the verification and approval, the amount will be credited to the mentioned bank account.

11. How many times PPF can be extended?

PPF account can be extended as a block of 5 years after the completion of 15 years. The investor is eligible for the interest for the balance amount accrues in the account as long as the account is continuing.

12. What are the tax benefits of investing in PPF?

• The amount deposited in a financial year under the PPF account will be claimed under section 80C tax exemption.
• PPF investment falls under the Exempt-Exempt-Exempt (EEE) category.
• At the time of withdrawal, interest and the accumulated amount are also be exempt from tax.

13. Is the PPF maturity amount taxable?

As PPF investment is EEE (Exempt-Exempt-Exempt ) category, the maturity amount is also not taxable.

14. Comparison between PPF and NPS?

• Both NPS (National Pension System) and PPF(Public Provident Fund) are government-backed investment vehicles.
• NPS is retirement specific and PPF is not a pension or retirement specific investment scheme.
• NPS is the higher return investment as a portion of it goes towards equity trading and for PPF it is fixed return investment.
• The Lock-in period for PPF is only for 15 years but for NPS it will be up to the time of retirement.
• Both NPS and PPF providing income tax saving benefits.
• NPS can start only between the age of 18 and 65 years, but PPF can start is any age.
• During the demises of PPF and NPS account holders, the corpus will be paid to nominees.

15. Comparison between PPF and RD

• PPF comes under EEE tax exemption, while forRD amount, interest is taxable and maturity amount is exempted from tax.
• The interest earned on RD or FD is lesser than PPF.
• Maturity time for FD and RD is flexible and very short compared to PPF.
• FD or RD can be stopped at any time, with small penalty charges.

CONCLUSION:

For newbie earners, PPF is the easiest and ideal investment option. Through PPF account they will get the advantage of tax saving and guaranteed returns. As it easy to open and had flexibility in the amount need to pay, it can be easily handled and continued. In case of emergency as the PPF scheme is allowing for partial withdrawal it is safe and convenient. As PPF is providing a higher interest rate than a normal bank FD or RD, it will give a higher return of the money.

As a reader, if you would like to share any points or information about PPF, please feel free to comment on the comment box, so that after the verification those contents can be added to the blog or edited in the blog to help other readers if it is beneficial.

Thanks & Regards.

Harry.

Harry

Harry J P is a Business development and sales professional passionate about sharing knowledge in the domain of sales, and personal finance which helps in Personal financial learning for newbie earners. This blog came out of the experiences in the domain of personal finance, business development, and the share market.

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