Even after several decades, the Public Provident Fund (PPF) remains a popular savings vehicle for many people. After all, the principal and interest gained are guaranteed by the government, and the returns are tax-free. The money invested in a Public Provident Fund account is deductible under Section 80C of the Income Tax Act of 1961, and the interest received is tax-free under Section 10.
Key Takeaways
- The Public Provident Fund scheme is a 15-year plan that may be extended in 5-year increments indefinitely
- A PPF account can be transferred from a post office to a bank or vice versa
- A Public Provident Fund account can be opened by anybody of any age, even those who already have an EPF account
- It is also possible to open it online with a few banks
What is Public Provident Funds – Know the Basics Here
One can deposit funds in a Public Provident Fund account up to 12 times each year. But remember to make the deposit before the 5th of the month to get maximum interest. This is because the interest is paid on the lowest balance at the credit of an account between the 5th day and the end of the month.
Many investors make a lump sum deposit at the start of the fiscal year. There are also opportunities for taking loans and making partial withdrawals from the plan.
Did you know
– The option to avail loans against Public Provident Fund is available from the third till the fifth year of opening the account.
With the tax-paying season around the corner, you might be thinking about opening a PPF account. Here are a few things that you should think about before you go ahead.
Eligibility to Open a PPF Account
To open a Public Provident Fund account, the investor must satisfy the following requirements:
- The investor needs to be an Indian citizen.
- The investor is only permitted to create one account in their name. Another account, however, can be opened on behalf of a minor.
- Non-resident Indians (NRIs) and Hindu Undivided Families (HUFs) are not eligible to register a PPF account.
- Following that, investors must complete the application form and submit the required papers, together with the deposit amount, to start the account.
Documents Required to Open a PPF Account
The following documents are necessary to start a PPF account:
- Application form for the PPF Scheme
- Identity Documentation (Aadhaar Card, PAN Card, Passport, or Driver’s License)
- Address Verification (Aadhaar Card, Passport, etc.)
- Signature
- Following the submission of the paperwork, the investor must deposit the investment money into the PPF account.
What is the Public Provident Fund Interest Rate?
Every quarter, the Ministry of Finance releases the PPF Scheme interest rates. The current PPF interest rate is 7.10 percent (FY 2021-22). The Finance Ministry maintained the previous quarter’s rate.
Did you know- Prior to 2017, Public Provident Funds interest rate announcements were made once a year or as needed. Since April 2017, however, interest rates have been reported every quarter.
The interest rate is calculated using the Public Provident Funds account balance. The minimum amount in an investor’s account between the 5th and final day of each month is used to compute the interest on the Public Provident Funds Scheme.
Public Provident Fund Details & Features
Tenure
A Public Provident Fund account must be held for a minimum of 15 years. However, the investor has the option of extending the term by a 5-year block. There are no further investments required for the extension.
Eligibility
PPF accounts can be opened by Indian citizens. Non-Resident Indians (NRIs) and Hindu Undivided Families (HUFs) cannot, however, create Public Provident Funds accounts.
Number of Accounts
Each person can only have one Public Provident Funds account. They can, however, create another account on behalf of a minor.
Investment Amount
You can start a Public Provident Funds account with Rs. 100. The minimum annual investment is INR 500. The maximum annual investment, on the other hand, is INR 1,50,000. Investors receive no interest on investments over INR 1,50,000.
The Frequency of Deposits
The deposit must be made once a year or in a maximum of 12 instalments each year. To keep the Public Provident Fund account open for the next 15 years, you must make at least one deposit.
Deposit Mode
Deposits into the PPF Scheme can be done online, by demand draught, check, or in cash.
Risk
The Public Provident Fund PPF is supported by the Government of India. As a result, it is one of the most secure investment solutions available to consumers. PPF provides assured risk-free profits. It also protects your capital. Therefore, the risk associated with PPF Scheme investments is negligible.
Shared Accounts
Individuals are only permitted to establish one account in their own name. The PPF Scheme does not permit the establishment of a joint account.
Nominees
The investor can choose a nominee for their account. They can do so either when they start the PPF account or afterwards.
Difference Between Mutual Funds and PPF
Public Provident Fund, as an investment vehicle, is often compared with another popular investment tool – ELSS mutual funds. Here are a few differences between the two, to help you make the right choice.
Basis of Difference | PPF | Mutual Funds |
Eligibility | Indian citizens | Indian citizens above age 18, NRI and PIOs, can invest in a mutual fund scheme |
Minimum and Maximum Investment | INR 500 and INR 1,50,000 | INR 100 and there is no cap on maximum investment. |
Returns | The PPF rate is 7.1% (fixed, revised quarterly) | Market linked returns |
Safety | Fixed returns, backed by the government. | Moderate to high market-linked returns. |
Lock-in Period | 15 years | No lock-in, except for ELSS and closed-ended funds. |
Taxation | Investment, returns and maturity amount are completely tax free. | Only investment in ELSS funds is tax-free. The gains from mutual funds are taxable based on the holding period of the investment. |
Word to Remember
ELSS Funds – ELSS mutual funds are classified as diversified equity mutual funds. This equity fund invests at least 80% of its assets in equities and equity-related securities, with a portion of the corpus being invested in debt. ELSS funds provide investors with both financial growth and tax savings.
ELSS mutual funds have a three-year lock-in period. Investors can claim tax deductions of up to Rs. 1.5 lakh each fiscal year under Section 80C of the Income Tax Act of 1961.
FAQs
Investors must file Form C to make a partial or a complete withdrawal from their PPF account.
Both the Public Provident Fund and the Fixed Deposit guarantee interest returns. FDs have tenures ranging from 7 days to 10 years and investors can select an appropriate term. The PPF term is set at 15 years. PPF returns are completely tax-free. Investors can choose the right investment tool for themselves on the basis of their needs and risk appetites.
No, an individual can only hold one PPF account in their name. However, another PPF account can be opened in the name of a minor.
No. Withdrawing PPF investments after 15 years is not compulsory. The investor can keep their investments for as long as they like. However, an extension for a 5-year period is granted at a time. Furthermore, an extension can be accomplished with or without further investments.
The highest annual investment limit under PPF is INR 1,50,000. This is also the maximum amount for which a tax deduction may be claimed. Plus, no interest is generated on any further investment.
The investments made under the Public Provident Fund fall under the category of EEE (exempt – exempt – exempt). This implies that all the investments, interest, and redemptions are tax-free.
Section 80C of the Income Tax Act allows for tax deductions on investments up to INR 1,50,000 per year. Investors can claim a tax break on their PPF investments when filing their income tax returns.
PPF interest payments are made once a year on March 31st. The interest generated on a PPF account is likewise tax-free. Furthermore, the maturity amount at the end of 15 years is tax-free.
As a result, PPF is an excellent investment choice for those wishing to avoid taxes. In addition to financial protection, the PPF account offers assured and risk-free returns, making it an excellent choice for investors.