Features of the Public Provident Fund Scheme
|Duration of Scheme||15 years minimum|
|Minimum Contribution per year||Rs. 500/-|
|Maximum Contribution per year||Rs. 1,50,000/-|
|Interest on Deposit||7.6%|
|Withdrawal Facility||Available from the end of the 6th Year.|
|No. of Deposits allowed||Minimum-1, Maximum -12|
|Extension of beyond the duration of the scheme||Duration of PPF can be increased in block of 5 years|
|Tax savings under section 80C||Up to Rs. 1,50,000|
|Tax on Interest received on the deposit amount||Exempt Income|
What is Public Provident Fund (PPF) Scheme?
Public Provident Fund (PPF) Scheme is one of the popular tax saving investment schemes in India. PPF deposits used to fetch an interest rate of 12% till January 2000 and was, therefore, seen as a solid form of investment. The interest rate was earlier revised annually, but since April 2016, it is subject to quarterly revision.
The current interest rate effective from January 1, 2018 is 7.6% per annum (compounded annually). Considering the dearth of options for investors seeking a guaranteed return from a debt instrument, PPF is considered the best option despite the rate cute.
What are the benefits of PPF?
PPF falls under the Exempt-Exempt-Exempt (EEE) tax status.
- 1st exemption - Investment in PPF is eligible for deduction (upto 1.50 lakhs per annum)
- 2nd exemption - interest earned is tax-exempt
- 3rd exemption – Maturity amount is tax-exempt
What is the annual deposit amount in the PPF account?
- The minimum amount which is required to be deposited is Rs. 500/-
- The maximum amount that can be deposited is Rs. 1,50,000/-
What is the duration of PPF account?
The PPF account has a lock-in period of 15 years. This tenure can be extended after 15 years in a block of 5 years. The account will continue to earn.
Who is eligible for opening a PPF Account?
Individuals who are resident Indians are eligible to open a PPF account in their own name as well as on behalf of a minor.
Non-resident Indians (NRIs) are not eligible, however, account-holders who leave India can continue to maintain their accounts till the maturity. They are not allowed to extend account tenures at maturity.
What are the documents required for opening a PPF account?
The following documents are required:
- PPF Account Opening Form (available at designated bank branch) along with Nomination form
- ID Proof like – Aadhar Card, PAN card, Passport, Voter ID, Driving license
- Address Proof
- Two recent passport size photographs.
- Documents should be self-attested.
How to deposit wisely into PPF account?
As per PPF policy, the interest is calculated on the principal amount which is present on the 5th day of every month. So one should always make a deposit between 1st to 5th day of the month.
For Example: If Raj deposits Rs. 10,000 on April 2, 2018, he will be paid interest on 10,000 for the month of April. However, if he pays on April 6, 2018 than he will not earn any interest for the month of April.
What is the frequency of deposit in a PPF account ?
You can make a lump-sum investment or maximum 12 instalments in a year. We recommend a lump-sum investment on April 1.
Can I withdraw money from my PPF account? How much money can I withdraw?
Yes, you can make partial withdrawals starting from the 7th year from the year in which the account was opened.
Lower of the following can be withdrawn:
- 50% of the accumulated savings at the end of 4th year
- 50% of the accumulated savings at the end of the immediately preceding year
Let’s explain this with the help of an example
|Year||Amount Invested||Interest Earned||Closing Balance|
In this case, Raj can withdraw money in the Financial Year (FY) 2018-19. Raj is eligible for withdrawing money from his PPF account, since FY 2018-19 is the 7th year from the year of opening the account. Maximum withdrawal allowed shall be lower of the following:
- 50% of the accumulated savings at the end of the 4th year i.e. 50% of ₹ 7,42,548 = ₹ 3,71,274 in 2015-16
- 50% of the accumulated savings at the end of the immediately preceding year i.e. 50% of ₹ 12,17,657 = ₹ 6,08,829 in 2017-18
Therefore, Raj can withdraw upto ₹ 3,71,274 from his PPF Account.
What are the rules regarding closure of PPF account?
PPF account can be closed after completion of 5 years, provided that the benefit of premature closure is used for any of the following reasons:
- Treating serious ailments or life-threatening diseases of self, spouse, dependent children or parent.
- Funding higher education of PPF account holder
Let’s explain this with the help of an example
Simran opened her PPF account on April 1, 2012. She wants to close her account on April 1, 2018 because she wants to fund her son’s higher education. Can she close her PPF account?
No, Simran is not eligible for premature closure of her PPF account despite completing 5 years since premature closure is permitted for medical treatment of family members and/or higher education of self only. Hence, she cannot close it to fund her son’s education.
What is Equity linked saving scheme (ELSS) ?
Another popular investment which is prevailing in market is Equity linked saving scheme (ELSS). Section 80C allows deduction from Gross Total Income if the taxpayer has invested in ELSS. ELSS has a lock in period of 3 years. But it generates more return than Fixed Deposit or Public Provident Fund.
Following table provides the comparison between the three:
|Nature of Comparison||Public Provident Fund||Equity Linked Saving Scheme||Fixed Deposits|
|Lock in Period||15 Years||3 Years||5 Years|
|Whether Withdrawal Facility Available during Lock in Period?||Yes||No||No|
|Taxability on maturity amount||Non-Taxable||Taxable||Interest portion Taxable|
|Risk||No Risk||Risk Involved||No Risk|
|Whether suitable for risk averse people?||Yes||No||Yes|
|Rate of Return||7-8%||12-15%||6-7%|
|Return Based on||Government Norms||Equity||Banking Norms|