What is a PPF Account ?
Public Provident Fund, often referred to with the abbreviation as PPF, is a scheme offered by the Indian central government to its citizens for investment that not only gives guaranteed returns but also gives tax benefits in terms of rebate under Section 80C of the Income Tax Act, 1961. Any Indian resident citizen can initiate a PPF account whether salaried employee, businessman, professional, self-employed among others. It can also be initiated under the minor’s name in the capacity of guardian of the minor by submitting an application with form A.
In this article, we are going to discuss important and significant aspects of the PPF account in detail. So let's get started with eligibility.
Any individual being a resident of India is eligible to open a PPF account in his own name or on behalf of a minor. This signifies that a PPF account can also be opened by parents for their children. However, there are a few restrictions which are as follows:
- An individual can only have 1 account under their name.
- Can’t be opened by NRIs
- A HUF (Hindu Undivided Family) can’t open a PPF account
- No joint account
Benefits of PPF Account
Investors can start with investing as low as Rs 500 per annum in PPF and the maximum amount of investment allowed is Rs. 1,50,000 in a financial year. So this option can prove to be an ideal one for even small investors or individuals who want to make small deposits.
Investors can avail of a loan against the PPF account from the 4th FY up to the 6th FY from the date of opening the account. However, a secured loan can be availed only after the closure of the 1st loan.
The money invested here in one FY gets exempt from the tax slab u/s 80C of the Income Tax Act and the interest earned thereon along with the accumulated amount does not have any tax liability post maturity.
A PPF account after its maturity term of 15 years can be further extended in the blocks of 5 years. Investors can withdraw a 60% amount from the PPF account if in need and the remaining balance can be extended in the blocks of 5 years.
Investment and Returns
The amount in PPF can be invested in a lump sum or in a maximum of 12 installments. The Ministry of Finance announces the interest rate for PPF accounts every quarter. This interest is compounded on an annual basis and is paid on 31st March every year. Interest is calculated on the lower balance between the close of the fifth day and the end day of each month. The present interest rate on PPF is 7.1% for the period of April to June 2021 which was the same for the previous period.
PPF Maturity Options
As discussed, the original tenure for this instrument is 15 years and on application by investors, this can be extended for 1 or more blocks of five years.
There are 3 alternatives available once the maturity period is expired:
Extend PPF account with contribution
Here, investors can put money in their PPF after extension. Form H needs to be submitted within 1 year from the date of maturity and a single withdrawal is permitted every year.
Extend PPF account with no contribution:
Here, the extension is made after 15 years without any contribution from the investor. This is the default option where if no action is taken within 1 year of maturity, this automatically activates.
Under certain specific conditions, Premature closure is allowed. If investors opt to close the account permanently, they will receive 1% less interest than the prevailing rate. The primary condition here is that the account should have at least completed 5 years from the date of opening. If this condition is completed, following are the circumstance where premature closure is permitted:
- If the residency status changes.
- If the investor, or parents, dependent children, or spouse is suffering from life-threatening disease.
- If the investor needs funds for higher education.
It must be noted that the relevant documentary proofs are required in all the listed circumstances.
How to Open an PPF Account ?
If the investors are within the eligibility criteria, they can go forward with opening a PPF account comfortably through the online or offline process. The online process can be done by visiting the website of the chosen bank or post office. At the time of opening this, certain documents are required for the same, which are listed below:
- PAN Card
- Address proof
- Form for nominee declaration
- KYC documents
- Verification of Identity (Aadhar, Voter ID, etc.)
- Passport size photographs
- It originated in the year 1968 under the PPF scheme, 1968.
- Being a government-back instrument, it is very safe when compared to other instruments.
- It is considered to be one of the best debt options available for common people.
- The balance in this account can’t be attached under a court decree.
- It offers EEE tax benefit to the investors which means the contributions made to this account.
- Availability of flexible investment options of lump sum and installments.
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