Public Provident Fund (PPF) is one of the most popular saving investment scheme for small investors. Public Provident Fund generally offers a higher interest rate than bank deposits. Investors of PPF gets the benefit of Income tax on the maturity amount and rebate under section 80 (C) up to Rs 1.50 lacs. In PPF Contributions, interest and proceeds on maturity are all tax-free
PPF Investors also get the benefit of loan facility and partial withdrawal on PPF account, which currently offers an interest rate of 7.6 per cent.
Read More : Are Your Money Safe in PPF ?
Who Can Open PPF Account in Banks, Post offices ?
• An individual can open account with INR 50/- but has to deposit minimum of INR 500/- in a financial year and maximum INR 1,50,000/- . Deposits can be made in lump-sum or in any installments. Rules changed from existing 12 in a year. Read – 5 changes in PPF Rules
• Only one account can be opened by an individual in one name.
• Joint account cannot be opened.
• HUF are not eligible. Non Resident Indians (NRIs) are not eligible to open the account.
• Interest is credited to the account on 31st March of every year on the minimum balance between 5th day and end of the month. The rate of interest is notified by Ministry of Finance from time to time.
• Account can be opened by cash/cheque and In case of cheque, the date of realization of cheque in Govt. account shall be date of opening of account. The acceptance of cash subject to extant guidelines. Account can be opened online with many of the banks.
• Nomination facility is available at the time of opening and also after opening of account.Account can be transferred from one branch to another.
• The subscriber can open another account in the name of minors but subject to maximum investment limit by adding balance in all accounts.
Maturity & Redemption
• Maturity period is 15 years but the same can be extended within one year of maturity for further 5 years and so on. During the extended period, the subscriber is eligible to make partial withdrawals not exceeding one every year subject to the condition that the total of the withdrawals, during the 5 year block period, shall not exceed 60 percent of the balance at credit at the commencement of the said period.
• Maturity value can be retained without extension and without further deposits also.
• Premature closure is not allowed before 15 years. However, premature closure of the account after completion of 5 years from the end of the year in which the account was opened could be considered by the Ministry of Finance on genuine grounds of hardship.
Withdrawal & Income Tax on PPF
• Deposits qualify for deduction from income under Sec. 80C of IT Act. Interest is completely tax-free. The amount standing to the credit of the account is fully exempted from Wealth Tax.
• Withdrawal is permissible every year from 7th financial year from the year of opening account.The amount is limited to 50% of the balance at credit, at the end of 4th year immediately preceding the year in which the amount is withdrawn or at the end of the preceding year whichever is lower less the amount of loan if any drawn by him which remains unpaid.
Loan Facility on PPF Accounts
Loan facility is available from 3rd financial year. The first loan can be taken in the third financial year from the financial year in which the account was opened but before expiry of five years from the end of the year in which the initial subscription was made up to 25% of the amount at the credit at the end of Second financial year immediately preceding the year in which the loan is applied for. Loan is repayable in 36 months, w.e.f 01.12.2011, Interest is payable on the loan at 2% per annum of the principal.
The repayment of loan may be made either in one lump sum or in two or more monthly installments within the prescribed period of thirty six months. The repayment is credited to the subscriber’s account. After the principal of the loan is fully repaid, the subscriber shall pay interest thereon in not more than two monthly installments at the rate of two per cent per annum of the principal.
If the loan is not repaid within the prescribed period of thirty six months, interest on the amount of loan outstanding shall be charged at six per cent per annum instead of at two per cent per annum.
• The loan can be taken only once in a year even though the loan taken in the year is repaid in the same year as the limit of amount of loan is fixed for each year. No attachment under court decree order.
Activation of Dormant PPF Account
Discontinued PPF account can be revived on payment of fee Rs.50/- per year along with arrears of subscription of Rs.500/- p.a. A discontinued account can be revived during the period of maturity only. It cannot be revived after maturity nor can it be closed before maturity. The account will continue to earn interest till it is closed after maturity.