Public Provident Fund (PPF)

Admin
March 03, 2023

Introduction: The Public Provident Fund (PPF) is a long-term savings scheme launched by the Indian Government in 1968 to provide financial security and stability to the Indian middle class. It is a tax-free savings instrument that offers guaranteed returns and provides tax benefits under Section 80C of the Income Tax Act. In this article, we will discuss everything you need to know about the PPF scheme, including its features, eligibility criteria, account opening process, contribution limits, interest rates, maturity period, withdrawal rules, and tax benefits.

Features of Public Provident Fund (PPF) Scheme: The PPF scheme offers the following features:

  1. Tax-Free Returns: The PPF scheme offers tax-free returns on your investment. The interest earned on the PPF account is exempt from tax.

  2. Guaranteed Returns: The PPF scheme offers guaranteed returns on your investment. The interest rate on the PPF account is fixed by the government and is subject to change every quarter.

  3. Long-term Investment: The PPF scheme has a maturity period of 15 years. You can extend the account in blocks of 5 years after maturity.

  4. Low-Risk Investment: The PPF scheme is a low-risk investment as it is backed by the government.

  5. Easy Accessibility: The PPF scheme can be easily opened at any post office or designated bank branch.

  6. Nomination Facility: The PPF scheme offers nomination facility to account holders.

  7. Transferable: The PPF account can be transferred from one bank or post office to another.

Eligibility Criteria for Public Provident Fund (PPF) Scheme: The following are the eligibility criteria for opening a PPF account:

  1. Indian Citizen: Only Indian citizens are eligible to open a PPF account.

  2. Age Limit: Individuals of all age groups can open a PPF account. Parents or legal guardians can open a PPF account on behalf of a minor.

  3. One Account per Individual: An individual can open only one PPF account in his/her name.

  4. Non-Resident Indians (NRIs): NRIs are not eligible to open a PPF account. However, NRIs who already have a PPF account before becoming an NRI can continue to hold the account till maturity.

Account Opening Process for Public Provident Fund (PPF) Scheme: The following are the steps involved in opening a PPF account:

  1. Choose a Bank or Post Office: Select a bank or post office where you want to open a PPF account.

  2. Fill up the Application Form: Fill up the PPF application form available at the bank or post office.

  3. Submit Documents: Submit the necessary documents like identity proof, address proof, and photograph along with the application form.

  4. Initial Deposit: Deposit a minimum of Rs. 100 in your PPF account to activate it.

  5. Collect Passbook and Receipt: Once your account is activated, you will receive a passbook and a receipt for the deposit made.

Contribution Limits for Public Provident Fund (PPF) Scheme: The following are the contribution limits for a PPF account:

  1. Minimum Deposit: The minimum deposit for a PPF account is Rs. 500 per year.

  2. Maximum Deposit: The maximum deposit for a PPF account is Rs. 1.5 lakh per year.

  3. Number of Deposits: You can make a maximum of 12 deposits in a year. However, the total deposit for the year should not exceed Rs. 1.5 lakh.

  4. Flexible Deposits: You can make flexible deposits throughout the year as per your convenience.

Interest Rates for Public Provident Fund (PPF) Scheme: The interest rate on the PPF account is fixed by the government and is subject to change every quarter. The interest rate for the PPF scheme is currently 7.1% per annum for the April-June 2021 quarter.

Maturity Period for Public Provident Fund (PPF) Scheme: The PPF scheme has a maturity period of 15 years. After the completion of the 15-year tenure, you can extend the account in blocks of 5 years. There is no limit to the number of extensions that can be made.

Withdrawal Rules for Public Provident Fund (PPF) Scheme: The PPF account has withdrawal rules that are as follows:

  1. Partial Withdrawal: After the completion of the 5th year of the PPF account, partial withdrawals can be made subject to certain conditions. The maximum amount that can be withdrawn in a year is 50% of the balance at the end of the 4th year or the balance at the end of the preceding year, whichever is lower.

  2. Premature Closure: The PPF account can be prematurely closed after the completion of the 5th year for medical treatment, higher education, or in the case of the death of the account holder. Premature closure attracts a penalty of 1%.

  3. Loan Facility: After the completion of the 3rd year of the PPF account, a loan can be availed against the balance in the account. The maximum amount of the loan is 25% of the balance at the end of the preceding year.

Tax Benefits for Public Provident Fund (PPF) Scheme: The PPF scheme offers tax benefits that are as follows:

  1. Tax Deduction: The amount deposited in the PPF account is eligible for tax deduction under Section 80C of the Income Tax Act. The maximum deduction limit is Rs. 1.5 lakh per annum.

  2. Tax-Free Returns: The interest earned on the PPF account is exempt from tax.

  3. Tax-Free Maturity Amount: The maturity amount received on the PPF account is also exempt from tax.

Conclusion: The Public Provident Fund (PPF) scheme is a popular long-term savings instrument in India that offers tax benefits and guaranteed returns. It is a low-risk investment option and can be easily opened at any post office or designated bank branch. The PPF account has a maturity period of 15 years and can be extended in blocks of 5 years after maturity. The maximum deposit limit is Rs. 1.5 lakh per year, and the interest rate is fixed by the government and subject to change every quarter. The PPF account also offers withdrawal rules, loan facility, and tax benefits under Section 80C of the Income Tax Act.