How PPF Interest is Calculated

PPF commonly known as Public Provident Fund is a long-term investment scheme that has an attractive return and rate of interest upon the investment of a certain amount. Under this scheme, the amount does not fall under the taxable bracket. Once a PPF account has been opened, a certain amount is required to be invested every year and the claim can fall under 80C deductions.

Significance of PPF Account:

– The PPF scheme is one of the best kinds of investment for those individuals with a low appetite for risk.

– As it is a government-backed scheme, the investment is not linked with the market. This makes it easy for it to provide a return on the amount deposited.

– While the return on PPF accounts is fixed, the scheme is used as a diversification tool for an investor’s portfolio. In addition, they also offer tax benefits.

How to Open a PPF Account?

An individual can easily open a PPF account in a Post Office or a nationalized bank such as Punjab National Bank, State Bank of India, etc. Several private banks offer the same service such as HDFC, Axis Bank, ICICI Bank and more

To open the account, the following documents are required:

– The PPF account application form

– KYC documents like Driving license, Aadhaar card Voter ID card, etc.

– Passport size photograph of the applicant

– Residential address proof

– Nominee declaration form

– Once the document has been submitted, a certain amount must be deposited once the account is opened

Key Takeaways

Who is allowed to open an account under the PPF scheme?

– Any individual holding Indian citizenship

– One individual can have only one account unless the second account is that of a minor.

– HUFs and NRIs cannot open a PPF account. However, an existing account in their name will continue till its completion.

What is a PPF Account?

The Public Provident Fund scheme or PPF is a saving cum investment scheme that was initiated to encourage investment with the assurance of safe return and tax benefits. First offered in 1968, the Finance Ministry’s National Savings Institute established it as a powerful tool for long-term investors.

Most investors use the PPF to build financial security upon their retirement. Due to this, the scheme is quite popular amongst small savers.

Focus on the Positives: Pros of a PPF Account

Following are some of the benefits of PPF benefits:

– The scheme has a risk-free return as it is not based on market volatility

– Partial withdrawal is possible in the 7th financial year of the account’s tenure

– The account is applied with a compound interest rate

– The account comes with the unlimited facility of extension in a tenure of 5 years of maturity

– Advances and loans can be incurred against the balance of PPF

Eligibility and Documentation for a PPF Account

Eligibility of minor for PPF account?

– Only guardians or parents are allowed to open a PPF account on behalf of minors

– Minor’s account can only be operated by their legal guardian

– It is mandatory to register the nominee of the account

– Grandparents are not allowed to open accounts for their grandchildren

– The total amount in a minor’s account cannot be more than Rs. 1.5 lakhs

– Parents of minors must provide their KYC document along with verification and photograph with their minor’s applicant form.

Eligibility of NRIs for opening a PPF account? 

– An individual who is of Indian resident but has turned an NRI can continue their existing account

– NRI are allowed to keep their account open till the maturity tenure of 15 years. However, the tenure cannot be extended any further.

Did You Know?

It is important to understand that an individual is only allowed to withdraw the money from its PPF amount only after it gets matured after 15 years. Post this period the interest gets credited, and the account money can be withdrawn and closed. However, in case an individual requires money before the account gets matured, they can do it upon completion of 6 years. 

A PPF account holder can also prematurely withdraw an amount of 50% of their deposit at the end of their 4th year. Any further withdrawal can only be made only once a year.

Initiate Savings as Investment: How can the PPF calculator help?

When planning an investment, calculating PPF can be of great help to estimate the return:

– It helps in resolving several questions related to the functionality of the account

– It presents a clear picture of the return amount against the money that has been invested

– The calculator can be repetitively used till the account holder strikes the perfect balance between the amount invested and the return amount.

– Being an automated process, manual errors can be easily avoided

– The calculator can be used during the tax planning stage as well

With all these benefits in place, a PPF account holder can enjoy the financial security can enjoy in the coming years. Due to their tax benefits, the amount does not get deducted every year and can thus be completely saved. In addition to this, opening an account is very easy and does not require a long list of documents to get the work done. This is, therefore, one of the most popular financial schemes that maximum individuals adopt in their plan of tax saving, easy return, and low-risk policy.

How PPF Interest is Calculated?

The interest rate of the PPF account money is calculated based on the interest determined by the Ministry of Finance. This rate is decided every quarter. The calculation is done based on the account’s calendar month with the lowest balance between the fifth day and the last day of the month. At the end of the financial year, the account gets credited with the interest amount. The interest amount is credited at the end of the fiscal year irrespective of the status of the account. 

Word to Remember

When thinking about PPF, its functionality features, and Features of Public Provident Fund and PPF account calculators, etc., here are some features for a better understanding of this scheme:

• Within a financial year, a PPF account holder must deposit a minimum of Rs. 500/- or a maximum of 1.50 lakhs. 

• The maximum amount paid in PPF can also cover the deposit for minor 

• The number of deposits done in the multiplication of Rs. 50/- till Rs. 1.50 lakhs is allowed to be deposited in a certain fiscal year.

• An individual is allowed to open a PPF account by using both cheque or cash as per their convenience.

Conclusion

Having a PPF account can be beneficial during taxation. Under section 80c, one can enjoy several benefits. An individual can claim a maximum amount of deduction of Rs. 1.5 lakhs. It is important to note that in addition to PPF several other instruments come under this section. Therefore, a combination of all these components should add up to the said amount. 

With PPF, one can also enjoy a tax status called “exempt-exempt-exempt (EEE)”.

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