PPF is a popular investment scheme in India. In this article, we will talk about the consequences of Missing PPF Contribution. Read on to know more!
Missing a PPF contribution for a financial year leads to account discontinuation, loss of interest benefits, and a penalty for revival. You must pay a ₹50 penalty and deposit missed contributions to reactivate your account.
PPF stands for Public Provident Fund. It is a long-term investment option, which can be used to meet any financial requirement in the future. It is an investment option under the National Pension Scheme (NPS) which offers a lot of tax benefits as well. PPF interest rates are fixed every year by the government, and they are usually higher than other savings schemes. In this article, we will discuss about PPF Penalty and what happens if you miss a PPF contribution for a year.
What is PPF Contribution?
PPF contribution is a type of savings scheme in India, which can be opened by any individual. A PPF account is an investment method that helps you save money for the long term. It allows you to deposit money annually up to ₹1.5 lakh and earn interest on it.
The minimum amount that can be invested annually is ₹500. You do not need to pay tax on this amount or the interest earned, provided the funds remain invested for at least 15 years from the date of opening the PPF account.
Benefits of PPF Contribution
If you are missing PPF contributions, you might be missing some major benefits of PPF. It is a long-term investment option with multiple advantages as mentioned below:
Tax Exemption
Section 80C of the Income Tax Act, 1961 allows the amount invested in PPF to be exempted from tax. The maturity amount received after the tenure is also free from tax. So you can claim tax benefits on your contribution to the PPF account. The maximum amount that can be claimed as a tax deduction in a financial year is ₹1,50,000. After the tenure of 15 years, the maturity amount you receive is also exempt from tax, making PPF a tax-beneficial investment.
If you want to calculate the tax exemption on your PPF contribution, you can use the PPF calculator by Vakilsearch. Using this tool, you can calculate the tax benefits you will get based on your contribution, tenure, and interest rates.
Risk-Free Returns
One of the major concerns of an investor is the risk involved in investment. That’s when PPF comes into play. PPF investment is fully managed by the government, and even the returns are overseen by government authorities. It is a risk-free investment and has guaranteed returns. The interest rates are fixed by the government, which makes PPF a secure investment choice.
Partial Withdrawals
The PPF account has a minimum tenure of 15 years. At the end of 15 years, you get the maturity amount based on your investment and the applicable interest rates. However, if you need money before 15 years, PPF allows you to take a loan after 2 years of starting a PPF account. The loan can be up to 25% of the investment amount.
PPF also allows partial withdrawal of money after 7 years of starting the PPF account. The withdrawn funds can be used for multiple purposes including health and educational needs.
Flexible Tenure
The PPF account matures after 15 years, but the government allows individuals to extend the tenure in blocks of 5 years. You can withdraw the matured amount after 15 years or increase the tenure to 20 years and continue to enjoy the benefits of stable interest rates.
Small Investment
Investment is often seen as a complex process, and many people are hesitant to invest a large portion of their income. PPF addresses this concern effectively. Being a government-managed investment option makes it more reliable, and the minimum investment amount is just ₹500.
These are some major benefits of investing in a PPF account. Missing PPF contribution can reduce the interest you receive and cause other issues, which we will discuss in the next section.
If you want to calculate the maturity amount you will receive after 15 years or extended tenure, you can use the online PPF calculator by Vakilsearch. The calculator provides a clear view of the expected returns and is helpful during tax planning.
Consequences of Missing PPF Contribution
As you now know, investing in PPF has multiple benefits. Let’s now explore the consequences of missing a PPF contribution.
Loss of Interest Benefits
The interest you receive annually in your PPF account depends on the amount you invest. So if you fail to deposit the minimum or full contribution in your PPF account, you will earn less interest. This will directly impact the maturity amount you receive after the PPF tenure ends.
The reason for missing the deposit can be anything, but if your account has less investment, the interest will be lower. Over the years, this could significantly reduce your maturity benefits.
Discontinued Account
The minimum annual investment required in a PPF account is ₹500. If you fail to deposit at least this amount during a financial year, your PPF account will be marked as “discontinued.”
In a discontinued PPF account:
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No new contributions are allowed.
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The amount already deposited will remain and earn interest till maturity, but at reduced returns.
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You cannot open another PPF account while the first remains inactive.
However, the good news is that a discontinued account can be revived within the 15-year period by visiting the bank or post office. A nominal fee of ₹50 per year missed must be paid, along with the minimum annual contribution for each of those years.
Conclusion on PPF Penalty
PPF is one of the most popular and secure investment options in India, managed by the government with stable interest rates. These interest rates are decided annually by the government, making it a risk-free investment choice.
Investing in a PPF account allows your funds to grow with compounded interest and enjoy tax exemptions. However, missing your annual contribution can lead to account discontinuation, reduced returns, and penalties.
This article has detailed how skipping contributions affects your PPF account and what actions you can take to revive it. If you wish to know the maturity amount and returns on your investment, Vakilsearch provides an online PPF calculator to help you manage your finances effectively and plan your future contributions better.
