Public Provident Fund (PPF) is a long-term government scheme introduced to encourage small savings. The scheme is risk-free as it pays fixed interest to the investors. It also offers tax benefits under Section 80C of the Income Tax Act 1961. It is suitable for investors looking for long-term risk-free investment alternatives. Read to find out more about the features and how to invest in PPF.
PPF is a Government of India scheme introduced in 1968 to mobilise small savings and encourage long-term investing. The scheme pays a fixed interest of 7.1% per annum to the account holders, which is not taxable in the hands of investors. The tenure of the scheme is 15 years, which means the investment is locked-in until maturity. PPF is an excellent investment alternative for investors looking for a fixed return for the long term.
Following are the features of PPF.
The following are the eligibility criteria to open a PPF account.
To open a PPF account, you will need to submit the following documents.
You can invest in PPF through offline and online modes.
Your PPF account will be opened, and you will receive a passbook containing all the important information, such as your PPF account number, branch name, account holder name, and balance.
To open a PPF account online through a post office or a bank, you must have a savings account with them. Moreover, this account should have internet and mobile banking facilities activated. If you do not have it, then make sure you get it activated before you start the process of opening a PPF account.
Although the procedure varies across banks and post offices, the gist remains the same. The following steps will guide you to open a PPF account online.
After completing the above steps, your PPF account will be created. You will receive a confirmation on your mobile and email regarding the same.
You can withdraw money from your PPF account at the end of 15 years freely, along with the interest amount. However, if you want to withdraw the amount prematurely, there are certain rules.
Partial withdrawals are only allowed from the seventh year of account opening. You can withdraw only up to 50% of the amount in the account at the end of the fourth year. Moreover, the withdrawals can be made only once in a financial year.
To withdraw money completely or partially, you must follow the steps below.
PPF falls under the EEE category. Hence the investment, interest, and maturity proceeds are exempt from tax. An investment up to Rs 1.5 lakhs qualifies for tax deduction under section 80 C of the Income Tax Act, 1961. The interest and maturity proceeds are also tax-free upon maturity.
You can avail a loan against your PPF account. According to the rules, you can take a loan between the 3rd and 6th year of account opening. The maximum amount of loan is 25% of the total amount available, and the maximum tenure is three years. You can also take a second loan before 6th year if the first loan is fully repaid.
To close your PPF account, you must wait for 15 years (until maturity) and then fill out Form C with all relevant information and submit it to the Post office or the bank through which you’ve invested in PPF.
You can also prematurely close your PPF account after five years after opening it. However, this is allowed only in certain circumstances. For example, if the account holder or the dependents are facing life-threatening sickness or you are paying for your higher education, you are changing your residential status. In all these cases, you can prematurely close the PPF account and take back your investment amount.
Apart from post offices, the following banks are authorised to accept PPF investments.
How much can you invest in PPF in one year?
The maximum investment in PPF account in a year is Rs 1.5 lakhs. If you invest more than this, you will not earn interest on it, and you also won’t enjoy tax benefits.
What is the right time for investing in PPF?
It is best to invest in PPF right at the start of a financial year. This is because you can earn interest on the investment throughout the year. If that is not possible, you can also invest in PPF before the 5th of every month to earn interest for the entire month.
What is the interest rate on PPF?
PPF interest rate is decided by the government every quarter. For the April -June 2023 quarter, the PPF interest rate is 7.1%.
Can you close the PPF account before maturity?
Yes, you can close your PPF account prematurely. However, it is allowed only in certain circumstances. If the account holder or the dependents are facing life-threatening sickness, or you are paying for your higher education, you are changing your residential status; only in these cases can you close your PPF account prematurely.
How to activate an inactive PPF account?
To reactivate your inactive PPF account, you must write a written letter to the bank or post office stating the reason for the account being inactive and requesting to reactivate the PPF account. Then, you must pay a minimum of Rs 500 for each year you’ve missed the investment, along with a penalty of Rs 50 per inactive year. After paying the dues, the bank or the post office will reactivate your PPF account.
How to withdraw money from a PPF account online?
To withdraw money from your PPF account online, you must log in to your net banking portal, download form C, and submit the filled form online.
Is PPF a good investment?
PPF is an excellent investment option for investors looking to earn a fixed interest for a long duration. It also helps in diversifying a portfolio and also helps in saving tax on the investment.
What is the age limit for opening a PPF account?
There is no minimum age to open a PPF account. All Indian citizens can invest in PPF. In the case of minors below the age of 18, a legal guardian can open the PPF account on their behalf.
How many times am I allowed to extend the tenure in the blocks of five years?
You can extend your PPF account in blocks of five years an infinite number of times. However, the extension is only possible after you complete the tenure of five years.