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5 Facts about Public Provident Fund you need to know

  • Highlights

  • PPF is long-term tool for high interest retirement savings

  • You can open a PPF account with just Rs.500 as first deposit

  • You get tax exemption up to Rs,1,50,000 under Section 80C

  • You can transfer your PPF to any bank/post office branch

If you are self-employed or work in small private companies or in the unorganised sector, the lack of pension deduction from your employer’s end can be cause for concern. But you have hope in the way of Public Provident Fund or PPF.

Introduced by the Finance Ministry in 1968, PPF is a social security scheme that enables you to save towards your retirement corpus. The best part about PPF is that it gives you higher interest on your saved sum as compared to putting the same amount in a normal savings account.

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Here are 5 facts about PPF that you should know.

You can open a PPF account in any branch of a nationalised bank if you are:

- A resident Indian aged 18 years or older or a salaried/self-employed individual not covered by the Employee Provident Fund Scheme or a minor, provided your account opening form is endorsed either by your parents or legal guardian, but not your grandparents.
- Hold basic KYC documents in your name. In this case, having PAN Card and Aadhaar Card is mandatory. You can also furnish your Driving License or Voters ID.
- Ready to make a minimum yearly deposit of Rs.500.

Additional Read: How to apply for PAN Card Online

Your PPF account comes with a lock-in period of 15 years and offers 2 major benefits

PPF emerges as the best bet to accumulate and watch your savings grow in the long term, especially keeping retirement in consideration. PPF comes with a lock-in period of 15 years.

However, you should keep in mind that your maturity amount is not calculated on the date on which you opened the account but is determined by the financial year in which the deposit was made.

With the guaranteed return assurance, PPF is considered a very meaningful savings option.

There are other factors that make it earn more points as in investment, which are:

- Loans
You are entitled to take a loan against PPF from the third financial year of opening the account. This facility will be available to you until the end of the sixth financial year.

The loan amount in this case is capped at a maximum of 25% of your PPF balance available at the end of 2 years exactly before the year in which you apply for the loan.

- Withdrawals
Although the full corpus of your PPF money can be withdrawn only after 15 years, PPF account rules allow you to make premature withdrawals from the beginning of the 7th financial year.

You can withdraw up to 50% of the amount that stood in the account on the 4th year or the end of the year preceding your withdrawal, whichever is lower. However, the moment you make a premature withdrawal from your PPF amount, you no longer hold the right to take a loan against your PPF.

You can extend your PPF account maturity

If your PPF account has matured after its 15-year mandatory lock-in period, you can either choose to withdraw the full amount on maturity or you can continue with your account without any contribution or continue it with a contribution. In the former case your PPF account continues to be operational by default.

However, you are permitted only one withdrawal for each financial year with the balance continuing to gain interest. In the second alternative, you can continue the PPF account by contributing. All you must do is handover ‘Form H’ in the bank where you have the PPF account, no later than a year from maturity and get an extension of 5 more years on the PPF. You can then withdraw only up to 60% of your PPF amount as it stood at the beginning of the extension period until maturity.

Your PPF comes with an EEE benefit

Your Public Provident Fund comes with an EEE (exempt exempt exempt) advantage. What this means is that you are exempt from paying tax under three occasions. The implication is that starting from your first deposit, the interest earned on your PPF and your maturity amount are all regarded as tax-free.

An investment in PPF of up to Rs.1.5 lakh is allowed for deduction under Section 80C of the Income Tax Act. You also stand to benefit in the following ways:
- No TDS is levied on withdrawals post maturity.
- No court can issue an order or decree asking that your PPF account be attached by any authority.

These benefits make it easy for you to cover your liabilities or outstanding debts.

You can transfer your PPF account from bank to bank

Unlike your bank savings account your risk-free PPF account can be transferred from one bank to another or even a post office of your choice, without losing its value. No penalties are levied if you wish to do so. To do this, follow the following process:

a) Get a transfer form from the branch where you currently hold your PPF account.
b) The existing bank then hands over this form to the bank/post office you chose along with the certified copy of the account, a copy of your specimen signature, and other essential documents required to make the transfer.
c) The new bank or post office branch you choose will, on receiving these documents, inform you. Now you will have to fill a new account opening form submitted along with the old PPF passbook. You will also be required to complete KYC formalities in your new bank to continue using the account.

Equipped with these details, you can easily open a PPF account in your local bank or post office today itself to start saving for your retirement. If you’re looking for a one of the best instruments for planning your retirement, Public Provident Fund enables you to build a good corpus with compounding benefits.

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