PPF is an attractive tax-saving investment vehicle that is available to the citizens of India. It was founded with the primary objective of providing a reliable retirement solution to the self-employed as well as for those individuals who are not covered by their employers’ provident funds.
As a 15-year deposit account, it allows people to conveniently make investments over the long-term with a minimum deposit amount of Rs.500 each financial year. Subscriptions should be made in multiples of Rs. 5 and can go up to a maximum limit of Rs 1,50,000. The payment can be made in one lump sum or in installments not exceeding 12 in a financial year.
An individual can open a PPF account at any age but can only hold one account under their name. The only exception to this rule is in the case of accounts of minors of whom that individual is a guardian. HUFs & NRIs are not allowed to open PPF accounts, in the case of someone gaining an NRI status during the prescribed term, they may continue to subscribe to the Fund till its maturity on a non-repatriation basis.
Although Joint Accounts are not allowed, they do have a nomination facility. This account can be opened with any designated bank or a post office and can also be availed of online through some banks.
Benefits of opening a PPF account:
80 C benefits
Contributions made to PPF are eligible for tax deduction under sec 80C of the Income Tax Act and all the interest gained from this deposit is tax-free.
PPF also enjoys an exempt-exempt-exempt (EEE) status, wherein the withdrawal on maturity is also not taxed; allowing you to enjoy both the principal and interest tax-free.
Can help in planning financial goals
Being long-term in nature this investment avenue enables you to plan well in advance for your future financial goals.
Some points to keep in mind
The PPF account matures after the expiry of 15 years from the end of the financial year in which the account was opened. You can choose to extend it in blocks of 5 years with or without an additional subscription. Once an account is continued without contribution for more than a year, the option cannot be changed.
It can also be closed prematurely after the completion of 5 years with a penalty of 1% for specific purposes such as medical treatment for the account holder or dependents and for children’s higher education. You can even avail of a loan facility from the 3rd financial year up to the 6th financial year.
In the event of the death of the account holder during the term of the scheme, the balance in the account shall be paid to the nominee or to the legal heir if the account does not have a nomination.
One withdrawal in a financial year is permissible from the seventh financial year onwards. A maximum withdrawal of up to 50% of the balance amount at the end of the fourth year or the immediately preceding year, whichever is lower is also allowed.
The interest on your PPF account will be cumulated (not paid out) and is calculated on the lowest balance available in the account between the 5th of the month and the last day of the month. The total interest in the year is added back to PPF only at year-end. A PPF account is not subject to the attachment (seizure of the account by Court order) under any order or decree of a court.