Features of the Public Provident Fund Scheme

Facts	Details
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
2012-13	1,50,000	13,200	1,63,200
2013-14	1,50,000	27,248	3,40,448
2014-15	1,50,000	42,669	5,33,117
2015-16	1,50,000	59,431	7,42,548
2016-17	1,50,000	77,652	9,70,200
2017-18	1,50,000	97,457	12,17,657

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