PPF

All About the famous public provident fund

PUBLIC PROVIDENT FUND

As smart and responsible 21st Century youth, we need to be wary of our finances.
PPF has been around since 1968^2, it has been one of the most sought long term financial plans.

Why you should know about this?

To become financially independent.
For General knowledge.
To make informed decisions
For your family, friends and loved ones
To reach financial nirvana.

What is PPF exactly?

The Public Provident Fund (PPF) Scheme is a tax-free savings account scheme offered by the Government of India.
The PPF is a safe investment because it is backed by the Government and can’t be attached to your debt or liability. ^3

Benefits^3

High returns
Tax-exemption
Security to capital

Investment Amount

As per the rules of PPF, the minimum investment amount in PPF can be Rs 500 and the maximum can be Rs 1.5 lakh in a year. This maximum limit applies to all the PPF accounts you hold and even to a minor who has you as the guardian.
Investors can invest a lump sum amount or go for monthly contributions which can only be up to 12 in a year. ^1

PPF Maturity

PPF maturity period in India is 15 years. After completion of this duration, you can extend it in the blocks of 5 years.
As per the PPF scheme rule, the last date of the completion of the financial year is taken as the date of commencement, irrespective of the month of the fiscal year in which you invested.
For instance, if you started investing in PPF in October 2018, the calculation will be done from March 31, 2019. This means that the 15-year maturity will be on April 1, 2034. ^1

What ways do we have after the maturity of PPF? ^3

Way 1: Anytime after 15 years, you can close the account by submitting Form-3 to the accounting office. The accounts office shall allow you to withdraw the amount along with due interest.

Way 2: You can use the account after maturity without making any further deposits and still earn interest.

Way 3: You can extend your PPF account with further deposits during the block period of 5 years by submitting Form-3 to the accounts office.

PPF Interest Rate

The PPF interest rate is directly linked to the yields of 10-year government bonds and thus change regularly. Currently, the annual interest you earn for your PPF investment is 8%.
The interest is annually compounded and not paid to the investor.
This makes it one of the best options for achieving long-term financial objectives like retirement planning. ^1

The rate of interest is determined by Central Govt. on quarterly basis. At present it is 7.10% per annum with effect from 01.04.2020.^2

Tax Benefits

One of the reasons for the widespread popularity of PPF in India is the tax benefits it offers. PPF enjoys EEE (Exempt-Exempt-Exempt) tax status. All the contributions made to a PPF scheme in India are eligible for deductions under Section 80C of the IT Act. The interest that you earn over the 15 years duration is entirely exempt from tax.
In other words, all the proceeds at the end of the maturity period including your investment and the interest earned are exempt from tax. ^1

Loan Against PPF

As per PPF scheme rules, a loan facility is also available with a PPF account between your investment’s 3rd and 6th financial year. The first loan can be taken after three years from the investment. The loan amount can be up to 25% of the amount you have invested by the end of the 2nd year.
After repaying this loan, you can take another loan before completion of the 6th year of your investment. ^1

Income Tax benefits are available under Sec 88 of IT Act.^2

Misc

1. Nomination facility is available in the name of one or more persons. The shares of nominees may also be defined by the subscriber.

2. The account can be transferred to other branches/ other banks or Post Offices and vice versa upon request by the subscriber. The service is free of charge.

(Disclaimer: All the information provided is to give a general idea, individuals should read, research well before buying any scheme, insurance or entity.
Buyer should read all the related papers and r
Due credit to the original writers and researchers, this is just a review article.
For further information please do check on to the respective sites and references. )

References