Public Provident Fund (PPF) is one of the most sort after long-term investments to save taxes more efficiently and also gain interest at the same time. PPF is a tax-saving investment scheme that provides tax redemption under section 80C of the Income Tax Act. Any individual can open an account in their name in any nationalised bank or government authorized bank or post office at any time of their life. A minor can also have a PPF account where an adult acts as the guardian of the account and can avail the benefits on behalf of the minor. The scheme not only reduces the tax liability of the deposited money but also the interest and maturity amount are omitted from taxes.
The main objective of implementing such a scheme by the Ministry Of Finance was to mobilize the small savings by offering an investment option with profitable interest rates and tax benefits. Since it is a scheme fully guaranteed by the Central Government, it provides the required safety and confidentiality for the investors.
The interest rate for PPF accounts are announced every quarter by the Ministry of Finance, Government of India and the interest rate as of October 2018 is 8.0%. The interests are paid at the end of the financial year but the interests are calculated on a monthly basis. An investor can deposit a minimum of Rs.500 and a maximum of Rs.1.5 lakhs as a yearly deposit. Any amount paid more than Rs.1.5 lakhs do not earn any tax benefits or any interests either.
The PPF account lock-in period is 15 years but on the discretion of the investor, the account duration can be extended to up to 1 or more blocks of 5 years or be terminated once matured.
Once the account is matured, an investor is offered with three options:
1. Completely withdrawing from the account
2. Extending the subscription without contributions, i.e., the subscription can continue without putting in more money and any amount can be withdrawn once every financial year. This option is a default mechanism that activates automatically if the investor does not take any action after the maturity period is over.
3. Extension with a contribution, i.e., the investor can put in some more money while extending but this restricts the person to withdrawing money of only 60% from the account as a maximum in the block of five years extension.
There is also an option of premature withdrawal of the deposit which can be done starting from the 7th financial year of the 15 year lock-in period with a restriction of withdrawing 50% of the amount that stood in the account at the end of the fourth financial year.
1. It provides guaranteed returns since it is backed by the central government.
2. The investment can either be made in installments or as a lump sum with a minimum subscription of Rs.500, making it very flexible for the investors.
3. As per Section 80C of the Income Tax Act, the deposit can also be claimed for the rebate.
4. The interest and the maturity amount earned are exempted from tax liability.
5. Loans in PPF accounts can be availed from 3rd to 6th financial year.
6. Extension or termination of the tenure can be decided by the subscribers once the maturity period is over.
7. Partial withdrawal is allowed from the 7th year onwards.
8. Minors and housewives can be allowed to open a PPF account.
1. The lock-in period is long-term, i.e., for 15 years.
2. Joint accounts are not permitted, i.e., one person can only handle one account except it is of a minor.
3. NRIs and HUFs cannot open an open account.
4. There is a maximum limit of Rs.1.5 lakhs laid for depositing in a PPF account.
5. There is no liquidity.
As the PPF has its own benefits and disadvantages when compared to other investment options like that of tax-saving fixed deposits and ELSS mutual funds. So the options must be investigated stringently before making a proper choice even though PPF is the most widely opted long-term investment scheme.
Read to know about the Status Of your EPFO Claim in India.
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