Public Provident Fund (PPF) is a long-term debt investment product offered by the Indian Postal Service. It is a secure product that offers tax benefits and easy liquidity in the latter half of the account tenure. Various sections outlined here will provide you with all the information you need on PPF.
Where can you open a PPF account?
It can be opened in any head post office, general post office, selection grade post office, any branch of the State Bank of India and some branches of other nationalised banks.
Who can open a PPF account?
It can be opened by any adult in his name or as guardian of a minor. Only one account can be opened in the name of a person. A NRI is not eligible to open a PPF account.
However, if a resident individual opens a PPF account and then subsequently becomes a NRI, he can continue to subscribe to the PPF account that he had opened before he became a NRI.
How much can one invest?
You can invest a maximum of Rs 70,000 in the PPF account in a year. The minimum amount to be invested to keep the account active is Rs 500 in a year. Regardless of the yearly amount you wish to invest, you can invest the whole amount as a lump sum or in 12 monthly installments.
Tenure and interest rate
A PPF account matures after 15 financial years elapse from the date of opening the account. The current rate of interest offered is eight percent per annum compounded annually. A subscriber can close the account in the 16th financial year. The account can also be continued with or without subscription for a further block of five years.
Loan and premature withdrawal
Loans can be availed from the third financial year excluding the year of deposit. Amount of such loans must not exceed 25 percent of the amount that stood to the account holder's credit at the end of the second year immediately preceding the year in which the loan is applied for. A fresh loan is not allowed when a previous loan or interest is outstanding. Interest is charged at a rate of one percent if repaid within 36 months and at six percent on the outstanding loan after 36 months.
Withdrawal is permissible from the seventh financial year from the year of opening, limited to one in a financial year. Amount of withdrawal is limited to 50 percent of balance at the end of the fourth preceding year less the amount of outstanding loan, or 50 percent of balance at the end of immediate preceding year of withdrawal less amount of outstanding loan, whichever is lower.
Tax benefits
Deposits made in a PPF account annually are deductible from taxable salary under Section 80C. Deposits made are completely exempt from wealth tax. Interest earned is tax-free.
PPF is suited for the retired and self-employed whereas Employee Provident Fund (EPF) is better-suited for the salaried, purely from investment and returns point of view. Although EPF is mandatory for the salaried individuals, employed personnel can contribute voluntarily to their EPF account too. This contribution is in excess of the 12 percent (on basic salary) contribution that you mandatorily make and that your employer matches. This is called Voluntary Provident Fund (VPF).
VPF also earns the same interest as EPF. Although both PPF and EPF/VPF offer comparable benefits and features, since EPF/VPF earns 9.5 percent interest to eight percent interest on PPF, EPF/VPF is recommended for the salaried individuals.
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