Despite several investment options today, Public Provident Fund (PPF) scheme, 1968, is still investor and tax-saver’s most popular long-term investment scheme. No wonder, under the aegis of the Finance Ministry, the scheme not just guarantees the principal amount and interest, but also the benefit of tax-free returns.
If you are looking to invest continuously for 15 years in this government backed secure investment plan, here are few things you need to know:
Interest Rates
The PPF Scheme is a fixed-income, debt investment plan by the central government. The Government of India sets the PPF interest rates annually. The current rate for the financial year 2017-2018 stands at 7.9% p.a.
The Interest is compounded on a yearly basis (as per the rate announced for a particular financial year) and then credited at the end of every financial year. So, the rate isn’t fixed for the tenure, it changes every year.
Now that the money deposited into the PPF account before the 5th of a month is considered for calculations, one should deposit money from the 1st to the 5th of any month to maximise returns.
Minimum and Maximum Deposit Limits Under PPF Scheme
Currently, Rs. 500 is the minimum deposit required to be made every year in the PPF account and Rs. 1,50,000 is the maximum amount that a person can deposit annually.
The account holders can either deposit money in 12 installments in a year or can deposit the entire amount i.e. the lump sum at one time in a year.
In case, if the account holder fails to make an annual deposit, in any year during the tenure i.e. from 1 to 15 years, the account will become ‘inactive’.
Opening a Public Provident Fund Account
Public Provident Fund accounts can be opened either with post-office or with a bank, either by visiting the branch or online via internet banking. An account under the PPF Scheme can be opened for Rs.100. However, the minimum deposit for the year should be Rs.500.
Eligibility for Opening A PPF Account
Any adult Indian resident can open a PPF account. However, he/she can open only one Public Provident Fund account. No two PPF accounts can be opened by a single individual.
In addition, parents can open PPF accounts for minors too but the maximum limit i.e. Rs.1.5 lakhs annually is applicable to deposits made collectively in the parent’s as well as the child’s (minor) account.
Grandparents, however, cannot open a Public Provident Fund account in the name of their grandchildren if their parents are alive.
Nominee
In case of the account holder’s death, the nominee can claim the funds. The nominee will be required to show the proof of death of the PPF account holder.
In case there is more than one nominee, the nominees can claim the funds in the proportion mentioned by the account holder in the nomination form (Form-E) which is filled alongside the application form (Form-A) while opening the account.
Premature closure of PPF account
In the past, only partial withdrawals and loans were allowed, however, now there are provisions for premature closure of the Public Provident Fund account.
However, it is allowed, only on specific grounds such as treatment of life threatening disease of the account holder, his/her spouse or dependent parents or children, provided the account is 5 year old and over.
Premature closure of the PPF account is also allowed if there is requirement of money for higher education either of the person who holds the account or the minor account holder, provided documents as well as fee bills are submitted in confirmation of admission in a recognised institute either in India or abroad.
Tax Advantages from the PPF Scheme
Now that PPF deposits fall under the EEE tax category (Exempt, Exempt, Exempt), the account holder gets the tax advantage under section 80C, which means, any interest earned on these PPF deposits are non-taxable.
Amounts withdrawn from the PPF account are exempted from wealth tax. In addition, Amounts deposited in a minor’s PPF account also qualifies for tax breaks.
Advantages of PPF Schemes are here as under:
- Attractive Long term investment
- Useful for Retirement Planning
- Tax-Free Returns
- No Risk
- Easily Accessible
- No attachment
- Facility of loans against the corpus
Comparison Chart of Features of PPF Schemes With Similar Scheme i.e. Fixed Deposit
| Contribution to PPF scheme is eligible for income tax deduction every year under section 80C of income tax act. | Fixed deposits for less than 5 years are not eligible for tax deduction. |
| PPF is a periodic investment plan where you can invest a minimum amount of Rs.500 per year and up to a maximum amount of Rs. 150000 per year Fixed deposit is onetime investment where you will have to deposit a lump sum amount to avail interest. | Fixed deposit is onetime investment where you will have to deposit a lump sum amount to avail interest. |
| Interest on PPF is tax free and not liable to tax even at the time of withdrawal. | Interest on fixed deposit is taxable in the hand of tax payer. Bank is also liable to deduct TDS from the interest |
If you as an investor are looking for alternatives to park your money in avenues that can fetch you deduction every year under section 80C against your taxable income, Public Provident Fund (PPF) scheme is the most optimum tax saving option for you.
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