Everything you wanted to know about PPF
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Everything you wanted to know about PPF

  • Highlights

  • Deposit up to Rs.1.5 lakh for tax benefits on your PPF

  • Keep your savings parked for 15 years on high interest

  • Withdraw or take a loan in case of emergencies

  • Open a PPF account at a bank or post office

Unlike an EPF where you need to depend on your employer to create a provident fund account, PPF allows you to save on your own terms, just like you would in case of your other savings. However, the benefits of investing in PPF is higher than normal savings in terms of high annual interest you get on your money and the tax benefits you can enjoy as per Section 80C.

Public Provident Fund Explained

Brought to action by the Indian Ministry of Finance in 1968, PPF or the Public Provident Fund scheme is a tax-free savings instrument. You can claim deductions from your taxable income for up to Rs.1.5 lakh saved in your PPF account under Section 80 C. Also, the interest you earn on these deposits is non-taxable.

PPF helps you build a strong retirement corpus along with encouraging you to save at present by offering you tax exemptions.

Features of a PPF Account

The PPF was created to initiate a strong saving sensibility among the Indian population. Thus, keeping true to its original intention, the features of PPF are very flexible. Here are the features to note
A. Interest offered
The interest on your PPF savings is compounded annually, and the rates are announced once every year by the central government. As decided earlier this year, the present PPF interest rate offers excellent returns.
B. Tenor and deposit amount
You can start your PPF account with a minimum deposit of Rs.100 and deposit a minimum of Rs.500 or a maximum of Rs.1.5 lakh at least once a year. The PPF account can be held with you for 15 years and a 5-year maturity extension is also allowed to enable you to save more.
C. Deposit timeline
Abiding by the minimum and maximum deposit limit allowed on PPF, you can make a minimum of one deposit every year for 15 years or make monthly deposits of a fixed or flexible amount. One deposit in a year is mandatory to keep your PPF account active.

Who can invest in a PPF account?

Any Indian resident citizen of India of 18 years and above can open a PPF account. Here are the few salient eligibility details.
A. There is no upper age limit for opening an account.
B. In case you are starting a PPF for a minor, an account can be opened in their name by their parent or guardian. However, collectively both the minor’s and the parent’s accounts should show a maximum annual deposit of Rs.1.5 lakh.However, grandparents cannot open a minor account for their grandchildren.
C. Foreigners and NRIs cannot open a PPF account. But, in case you had an existing PPF account before you went out of the country, you can keep depositing funds to your account until maturity. However,you will not be able to avail the 5-year extension.
D. You cannot open PPF account as HUF, effective May 13, 2005.The accounts that have been opened before this law was passed can be continued until maturity without any extension.

Why should you invest in a PPF account?

The two primary reasons, for which you should save substantially in a PPF account,are because you can avail tax benefits and gain from the high interest earned on your saved sum.

Apart from these two broad benefits, there exists an array of positives in favour of a PPF account. Look at the reasons for which you should invest in PPF.

Benefits of investing in PPF

A. PPF is a long-term investment that comes with a minimum lock-in period of 7 years and a maximum maturity period of 15 years. So, it encourages the habit of saving consistently.
B. The interest earned via PPF is attractive and higher in comparison to other risk-free savings plans.
C. You can benefit from PPF by using it effectively as a retirement-planning investment instrument.
D. You are assured of both the interest and the returns since PPF is a government-backed instrument. So, your money is always parked in safety, without facing market fluctuations.
E. You can open a PPF account in any post office or bank. All nationalised and public-sector banks provide this facility, along with a few private banks.

Tax benefits of PPF account

Based on your annual contributions to PPF, you can claim a deduction of up to Rs.1.5 lakhunder Section 80C of the Income Tax Act. If you also pay for the PPF of your spouse and your minor children, then you are eligible to avail exemptions owing to these contributions.

However, ensure that it all cumulatively falls within the cap of Rs.1.5 lakh to get tax benefits. Apart from this, you get a complete exemption from paying any tax on the interest earned on your PPF and this exemption is also valid on the matured sum.

How can you maximise returns on your PPF?

Even though depositing substantially in your PPF account will fetch you good returns on maturity, you can maximise your earnings by following simple math: Invest Rs.1.5 lakh at the beginning of a financial year, i.e. in April. This will help you earn interest on the bigger sum in your PPF for the whole year.

The other way to maximise your interest returns is by timing your PPF deposits from 1st to 5th of every month. Remember interest is calculated on the lowest balance of your PPF account from 5th to the last date of the month. So, depositing in your account after 5th will not fetch you interest for that month.

How to open a PPF account?

To open a PPF account you will first have to choose a bank or a post office branch as per your feasibility and preference.It is more convenient to open a PPF account in a bank where you already have a savings or salary account. This will allow you maximum flexibility in terms of account management, and you can make online deposits to your PPF account directly from your savings account.

Documentation for opening a PPF account
Opening a PPF account involves an easy process and you do not have to furnish anything more than your KYC documents. Here is what you will need.
- Your Passport, PAN card, Aadhaar card, Driving License, or Voter’s ID.
- In case you want to open a PPF account in a bank or post office where you do not already have an account then you will have to submit the address proof of your current residential address. You may use documents such as your utility bill, rent agreement, bank passbook with your current address or ration card.
- Your recent photograph.
- The filled-up account opening form, along with the nomination forms in case you want to assign a nominee to your account.

Considerations for opening a PPF account
Understand all the eligibility criteria and the long-term components of PPF before you invest in it. Also, consider the fact that in case of emergencies, you can withdraw and foreclose your account only if you have maintained your account for at least 5 years.

Once you are ready to open your PPF, follow these steps and norms to get started:

Steps to opening your PPF account
You can open a PPF account only in authorised bank branches where PPF is available as an additional facility and at post offices. You can either visit the bank or post office branch in person to open an account or apply and open an account online using internet banking facilities available with the bank.

Here is how can start a PPF account:

Offline by visiting a branch
- Enquire with your local bank branches or post offices to know whether they have PPF facilities. You can also find this by checking on their websites.
- Once confirmed, visit the bank or post office branch and get PPF account opening application form from the help desk.
- Submit the filled-up form along with the documents.
- Make the first deposit towards your account.
- Proceed with the proof of the deposit and wait till you are handed over the passbook reflecting your deposit details along with your account and address details.
- This generally happens within a few hours of your visiting the bank or post office; however, in some cases, you may be asked to collect your passbook on the next day.

Online on the website
You can open a PPF account online only in banks, where some offer complete account opening facilities online and some offer partial facilities. While you can open the PPF account from start to finish if your bank offers complete facilities, partial facilities will allow you to download the PPF account opening form; however, you will need to visit the bank to submit it.

So, check with your bank to see if opening a PPF account is possible. If it is, follow these steps:
A. Meet the eligibility criteria of having a savings account in the bank where you are opening a PPF account
B. Activate both net banking and mobile banking
C. Link your Aadhaar to your account and your mobile number to Aadhaar
D. Now, login to net banking and select the option of opening a PPF account
E. Choose the savings account where you would like to contribute your money from and link it to your PPF account
F. Await the Aadhaar e-verification process and enter the OTP sent to your mobile number

Once you do this, your PPF account will become active. Now you will be able to access your PPF account on your personal banking ‘Account Summary’ page once you log in. Also, you can deposit cash into your PPF account easily via online fund transfers.

When is the best time to open a PPF account?

The best time to invest in PPF is April 1st to 5th. Otherwise you can start an account from 1st to 5th of any month. Opening an account at the beginning of the financial year allows you to claim interest for the whole year and doing it at the beginning of each month makes you eligible for the interest of that calendar month.

Withdrawals from your PPF account

You cannot close a PPF account before the full maturity tenor of 15 years,regardless of whether your account is active or inactive. However, you can partially withdraw funds from your PPF on grounds of medical or educational emergencies. The amount for such withdrawals is capped at less than 50% of the total balance at the end of the fourth year, preceding the year when you are making the withdrawal or 50% of the previous year's balance. This is decided based on whichever amount is lower. Also, you are allowed to avail this facility only once during a calendar year.

What happens after the PPF account matures?

When your PPF matures at the end of 15 years, you can either apply for a 5-year maturity extension and continue with the account or withdraw the entire amount including interest into your savings account.

There is one more thing that you can do with your PPF, i.e. allow it to stay intact for as long as you want without immediately withdrawing it or extending it. This will help you gain interest on the amount you have saved until you close the account.

Can you take a loan against PPF?

Yes, you are eligible to take a loan against PPF only if you fulfil a few basic norms and parameters listed below.
A. You are eligible 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.
B. 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.

Comparison of PPF with other investment avenues

PPF vs. NPS

Unlike PPF, NPS or National Pension Scheme is not tax-free. Also, the minimum amount balance in an account for NPS ranges between Rs.2000 to Rs.6,000. However, there is no cap on the maximum amount you can deposit and there is no restriction on withdrawals as well. Plus, the interest earned ranges between 10% to 12%.

You can continue an NPS account until you are 60 years of age. Apart from these basic areas of difference, NPS is available in two segments Tier I and Tier II. Also, because the money you save is invested in the market through various shares and bonds, the interest earning is more in case of NPS.

PPF vs. Voluntary PF

VPF or Voluntary Provident Fund accounts for the amount you contribute every month to your EPF as started by your employer. The basic amount that you can deposit is a minimum of 12% of your basic salary.

However, you can increase this in case you feel you can contribute more. But your employer’s contribution will not alter owing to this. Both in case of PPF and VPF, the tax benefits remain the same. Unlike PPF, the flexibility factor is lower in case of VPF.

PPF vs. FD

The interest earned on FDs is taxable. You can claim your FD investment as a deduction from your taxable income under Section 80C only when you keep the amount locked for 5 years. Also, the interest earning on FDs is lesser as compared to PPF, at least given the current scenario. Apart from senior citizen FDs, the FD tax benefits arelower in comparison to PPF.

SIP vs. PPF

Both SIP and PPF can be treated as long-term savings instruments. However, the major differentiating factors are the risk and the interest earned on each. While SIP is market-linked and can earn high returns whenever market is good, there is inherent risk in this investment. This is not true for PPF as what you saved earns a fixed interest over time and you get assured returns on your savings.

Equipped with all the details, think about opening a PPF account in your or your child’s name while protecting and growing your savings for the future. By regularly investing in PPF, you can grow your corpus, so you can easily fund your expenses post-retirement.

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