PPF - What is Public Provident Fund, Features and Tax Benefits
Exploring PPF - Public Provident Fund: A Comprehensive Guide
Understanding PPF
PPF's full form is the Public Provident Fund, a favored investment scheme known for its investor-friendly features and associated benefits. It stands as a long-term investment option, attracting individuals seeking stable yet high returns with a focus on safeguarding the principal amount.
Importance of a PPF Account
A Public Provident Fund scheme is particularly ideal for individuals with a low-risk appetite. Mandated by the government, it ensures guaranteed returns and is not subject to market fluctuations. This makes it a secure choice, offering stability in annual returns, especially during economic downturns.
Features of a PPF Account
- Interest Rate of PPF
7.1% per annum
- Tax Benefit
Up to Rs.1.5 lakh under Section 80C
- Risk Profile
Offers guaranteed, risk-free returns
- Minimum Investment Amount
Rs.500
- Maximum Investment Amount
Rs.1.5 lakh per annum
- Tenure
15 years
- Investment Tenure
The lock-in period of 15 years; extendable by 5 years
- Principal Amount
Minimum: Rs.500; Maximum: Rs.1.5 Lakh per annum
The investment must be made annually to keep the account active.
- Loan against Investment
Available after the 3rd year and up to the 6th year
Maximum loan tenure: 36 months
Maximum loan amount: 25% of the total available balance
- Eligibility Criteria
Indian citizens, including minors operated by parents
Non-residential Indians not eligible for new accounts
- Interest in a PPF Account
Interest rates: 7.1%, subject to quarterly updates
How to Open a PPF Account?
Both offline and online procedures are available for opening a PPF account. Online activation involves visiting the website of a selected bank or post office. Required documents include KYC documents, PAN card, residential address proof, nominee declaration form, and passport-sized photographs.
PPF – Tax Benefits
Income tax exemptions are applicable to both the principal amount and the interest earned in a PPF account. The entire investment amount qualifies for tax exemption under section 80C of the Income Tax Act of 1961, with a maximum limit of Rs.1.5 Lakh per annum. The interest accrued is also exempt from taxation.
Withdrawal
Withdrawal from a PPF account involves a mandatory lock-in of 15 years. However, partial withdrawals can be made for specific end-uses after the completion of 5 years. Up to 50% of the total balance can be withdrawn annually from the 4th year onwards.
Loan Against PPF Scheme
Between the third and fifth years of a PPF account, a loan can be taken, capped at 25% of the second year's balance.
Procedure to Withdraw PPF Money
To withdraw from a PPF account, complete Form C with the necessary information and submit it to the bank branch. Form C includes sections for personal details, office use, and banking information for direct credit or cheque issuance.
In conclusion, the Public Provident Fund (PPF) emerges as a secure and beneficial long-term investment option, offering stability, tax benefits, and flexibility for loans and partial withdrawals. It stands as an attractive choice for individuals seeking guaranteed returns and tax savings.