What is public provident fund?
Public Provident Fund (PPF) is a saving scheme established by the Central Government of India to encourage savings among individuals and provide some returns on their savings. It is a risk free and tax free scheme. The interest rate on PPF is paid by the Government of India and is fixed every quarter. The PPF interest rate for 1st July to 30th September is set at 7.9%
Safety with returns:
As PPF is established by the Central government it is a safe investment and gives returns higher than a fixed deposit.
Tax benefits:
Deposits up to Rs 1.5 Lakhs in a financial year qualify for tax rebate under Section 80C of the Income Tax Act.
Investment amount:
The minimum and maximum amount that can be invested is Rs 500 and Rs 1.5 Lakhs respectively every financial year. Amount can be paid in lump sum or in maximum of 12 instalments.
Loan against PPF:
You can avail loan against PPF between the 3rd and 6th financial year from opening the PPF account. Click here to read in detail about loan against PPF.
Tenure:
PPF is a long-term investment with a minimum duration of 15 years. Account holders can extend the duration of the PPF by a block of 5 years.
Mode of payment:
The minimum and maximum amount that can be invested is Rs 500 and Rs 1.5 Lakhs respectively every financial year. Amount can be paid in lump sum or in maximum of 12 instalments.
Interest rate:
Interest on PPF is fixed by the Government of India every quarter. It is calculated on a monthly basis but credited into the account at the end of the financial year.
Inactive PPF account:
The PPF account becomes inactive if money is not deposited to maintain it and a penalty is also charged for the same. The minimum contribution for keeping the PPF account active is 500 Rs. If you fail to deposit the money your PPF account is deactivated. To reactivate your PPF account you have to pay the contribution of Rs 500 and penalty of Rs 50 for each inactive year.
Premature closure of PPF account:
Pre-mature closure of PPF account is allowed only after completion of 5 financial years. There are two conditions for pre-mature closure
1) Serious illness of any family member
2) Higher education of account holder (Can also be minor)
You also have to pay 1% as penalty which will be deducted from interest rate. No tax is applicable for withdrawal on maturity. Form C is required to be submitted.
1) Serious illness of any family member
2) Higher education of account holder (Can also be minor)
You also have to pay 1% as penalty which will be deducted from interest rate. No tax is applicable for withdrawal on maturity. Form C is required to be submitted.
Partial withdrawal:
PPF account can be closed only after the completion of 15 years. However, if there is any urgent need of cash you can partially withdraw your funds after completion of 6 years of opening the account. The account holder can withdraw only 50% of the funds that are available at the end of the financial year, preceding the current year or at the end of the 4th financial year, preceding the current year, whichever is lower. Account holders can make withdrawals only once a year.