Is there any financial product that offers you a combination of guaranteed returns, tax benefits & safety? The answer is PPF. The Public Provident Fund (PPF) scheme introduced in 1968 & later amended in 2019 by the Government of India, is a savings scheme which encourages individuals to channelise their savings over a period of time & help them build a fund that could be used for financial goals like children’s education or wedding, building a house, retirement or any emergency. Let us try to understand the scheme.
Eligibility
A PPF account can be opened by resident individual & by individuals on behalf of minors or a person of unsound mind. An individual of any age -without any minimum or maximum age limit- can open only one PPF account in any designated branches of post offices or authorised banks. A PPF account can be opened either by parents on behalf of their minor son or daughter. Joint accounts cannot be opened. NRIs cannot open a PPF account. Opening of the account is simple & has minimal documentation.
Tenure & extensions
PPF account has a tenure of 15 years. The account will mature after the completion of 15 years from the end of the year in which the account was opened. However, you can extend the account in blocks of 5 years any number of times. The option to continue the account should be made by you within one year of maturity of the account. The new rules also permit you to continue the account after maturity either with or without fresh deposits. The new rules specify that when an account holder opts to extend the account beyond maturity without making any deposits, then he will not have the option to make further deposits thereafter. However, the balance in such an account will continue to earn interest.
Investments & rate of interest
Investments can be made either as a lump sum or in monthly instalments in multiples of Rs 50 in a financial year. There is no restriction on the number of instalments. If the minimum investment is not done, the PPF account will become inoperative. The maximum investment is capped at Rs.1.50 lakhs in a financial year.
Interest rates are determined by the government and declared quarterly. The current rate of interest is 7.10 per cent. Interest is paid annually & credited to the account by the last week of March. It is advisable to make deposits into the PPF account before the fifth of any month since interest is paid on the lowest balance at the credit of an account between the end of the fifth day and the end of the month.
Tax benefits
Contributions made to a PPF account, up to a maximum of Rs. 1.5 lakh per year, are eligible for tax deduction under Section 80C of the Income Tax Act. Interest earned on the PPF balance is also tax-free. Since the maturity amount on closure is also exempt from tax PPF comes under triple EEE category.
Nomination
Nomination facility is available and you can nominate up to four nominees. Not just this, you can indicate the share of entitlement of each nominee & mention the nature of entitlement- whether owner or trustee.
Partial withdrawals are allowed after the account completes 5 years, subject to certain conditions. Premature closure is allowed to meet expenses for treatment of a life-threatening disease or education or for change in residency status. Under the new rule, the interest on a prematurely closed PPF account will be calculated at 1per cent lower than the rate applicable during the current five-year block period. The greatest benefit of the PPF though, is that the amount in the account cannot be attached by any Court decree or order.