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PPF- Benifits of Public Provident Fund

By:- animesh dubey

I remember when my dad sugested me to deposit some money in PPF and I never agreed to him till the time i realised i should have opened it long back. Now I have openned my PPF account and now I understand the benifits of it. Below are some key features mentioned about PPF.

  • Public Provident Fund scheme is a long term investment scheme floated by the Government of India. PPF has been introduced for salaried as well as for self employed people to encourage savings habit and provide tax benefits. As compared to other small savings schemes introduced by government and by non- government institutions, The balance in the PPF account cannot be attached by any order or decree of court in respect of any debt or liability incurred by the subscriber.

  • Investor can invest as minimum as Rs. 500 to maximum Rs. 1,00,000 in the PPF account in one complete financial year in one lump sum subscription or in maximum 12 transactions. Tenure of PPF scheme is 15 years and premature closure of account is not allowed. After 15 years investor can completely withdraw the accumulated balance (Principal + Interest) and close the account or if investor desires to extend his PPF account, extension can be taken in a block period of 5 years for any number of times. As per PPF scheme terms and conditions prescribed by Government, an investor can avail of loan and withdrawal facility.

  • The interest rate in your PPF account is calculated on the lowest balance between the fifth and the last day of the month. So to maximise your earnings, try making deposits between the 1st and the 5th of the month. Interest is compounded annually and credited on March 31 each year.

  • You could take a loan on your PPF deposit, subject to certain terms and conditions. Loans could be taken from the third year onwards till the sixth year. Up to a maximum of 25 per cent of the balance at the end of the 2nd immediately preceding year would be allowed as loan. Such withdrawals are to be repaid within 24 months. Rate of interest charged on the loan would be 2 per cent more than the PPF interest rate prevailing then.

  • A second loan could be availed as long as you are within the 3rd and the 6th year, and only if the first one is fully repaid. Also note that once you become eligible for withdrawals, no loans would be permitted. Inactive accounts or discontinued accounts are not eligible for loan.

  • Deposits in a PPF account qualify for a deduction under section 80C. Furthermore, the entire maturity amount including the interest is non-taxable. Not only is the interest earned tax free, PPF deposits are exempt from wealth tax too.

  • After 15 years of maturity, full PPF amount can be withdrawn and all is tax free, including the interest amount as well. The PPF is a great wealth building tool for risk-averse investors and should be opened and continued till maturity by one and all.

  • Individuals who are residents of India are eligible to open their account under the Public Provident Fund scheme. A PPF account may be opened under the name of a minor by his/her legal guardian. However, each person is eligible for only one account under his/her name.

  • Non-resident Indians (NRIs) are not eligible to open an account under the Public Provident Fund Scheme. However a resident who becomes an NRI during the 5 years' tenure prescribed under Public Provident Fund Scheme, may continue to subscribe to the fund until its maturity on a non-repatriation basis. Deposit to PPF is tax deductible for individual assessees in India u/s 80C of Income Tax Act, 1961.

  • Under no circumstances, can an individual open two PPF accounts. You can not open an account for a minor. If you open an account with a minor, it is considered to be your PPF account.

  • Funds can be transferred via CASH or NRO Account. Funds can be transferred via Internet banking.

  • Invest in PPF account only if you are willing to invest for a long duration. But the returns will be high. Longer the duration you keep money in an investment like ppf higher will be the returns. Aren't you interested to deposit money in PPF?