Public Provident Fund (PPF) - Eligibility & Benefits
Public Provident Fund (PPF) is a small savings scheme for residents of India. It was introduced in the year of 1968 by the Ministry of Finance, Gov. of India. This scheme is one of the most popular secure saving schemes in India.
The PPF scheme offers an income tax deduction of up to Rs. 1.5 lakh under section 80C IT Act. As of now, the PPF account holder can deposit up to Rs. 1.5 lakh per financial year. An individual can have only one PPF account and has the option to add one or more nominees.
Eligibility criteria of Public Provident Fund (PPF) account
A person can open a Public Provident Fund account at any age. There are no upper limit restrictions. A person can have only a single PPF account. NRIs are not classified under this scheme.
- Usually, a citizen of India is eligible to open a Public Provident Fund account.
- Minors with parents or legal guardians can open a PPF account.
- NRIs are not eligible for this scheme.
- PPF account must have a single account holder. This account can not be opened/ managed jointly.
PPF Online Maturity Calculator
Required documents for opening a Public Provident Fund (PPF) account
There is a list of documents that can be required for opening a Public Provident Fund in a bank or post-office:
- Identity proof (Aadhaar Card, Voter ID, Passport, etc.)
- Address proofs (Aadhaar Card, Electoral ID, Driving License, etc.)
- PAN Card.
- Aadhaar Card.
- Passport size photograph.
- PPF application form.
- Nomination form.
How to open a Public Provident Fund account?
Nowadays, the PPF account opening is very easy. This can be opened in both online or offline mode. Most of Banks provides online PPF account opening facility from their Internet Banking portal. However, offline mode is also available. One can approach the Post Office or the nearest bank to open a PPF account. After mandatory paperwork, the account can be opened in offline mode.
Rate of Interest
PPF offers a pretty good interest rate. However, the interest rate is not consistent. The Government of India revises the rate quarterly. As a result, the PPF interest-rate fluctuates for years. Despite all these, the scheme returns a high-rate of interest. As of January-2021, the latest interest rate of the PPF scheme is 7.1% that compounds annually.
31st March of every year, the accumulated interest is gets credited into the account. The consideration of monthly interest is estimated depending on your deposits between the 5th day to the last day of per month. It's a best practice to invest within the 5th of the month of a year. The reason is, after the 6th month of a year, no interest is going to be credited.
Investment limit under the Public Provident Fund Scheme
Public Provident Fund allows the investment of a minimum of Rs.500 to Rs. 1.5 lakh with a maximum of twelve installments per financial year. The installment must be multiple of Rs. 50.
Tenure of a PPF account
Public Provident Fund comes with a locking period of 15 years from the account opening date. The tenure is allowed to extend by five years of interval. Extensions can be made by submitting the extension application to the concerned institution before maturity. One application will extend the tenure for the next five years.
Premature closure rules under PPF
The PPF account will mature only after the completion of 15 years. One can not close or withdraw funds until its maturity. However, with some limited conditions the PPF account can be closed.
Completion of 6 years, a maximum of 50% of the corpus can be withdrawn with a reasonable cause like critical medical expenses, higher education, the marriage of a child, etc.
Also, read PPF withdrawal, loan, pre-mature account closure rules
Nomination facility
The Public Provident Fund scheme allows an option to add one or more nominees. Immediate adding of nomination while opening a PPF account is not allowed due to some legal issues. Later, in order to add a nominee, a nomination form has to be submitted to the concerned authority. Anytime, the nominee can be changed later if required.
Tax benefits under the Public Provident Fund scheme
- The Public Provident Fund is categorized under EEE (Exempt-Exempt-Exempt).
- PPF offers an income tax deduction of up to Rs. 1.5 lakh under section 80C Income Tax Act. With this deduction, the entire-tax is made exempt.
- Interest earned on maturity is also exempt.
- At the time of income tax return, it is mandatory to include investments under PPF in 80C to get tax benefits.
Loan against Public Provident Fund (PPF)
The loan facility against PPF is available between the 3rd financial year and the 6th financial year from the opening date of the account. One can get a loan up to 25% of the corpus, depending on the investment of the last two preceding years.
As an example, one namely Ajay opened a PPF account in April 2020. He will be able to get a loan between the 3rd financial year (2023) and the 6th financial year (2027).
The rate of interest of the loan will be 2% higher than the persuading interest-rate on the value of your deposits.
As an example, if the current PPF interest rate is 7.1%, then the rate of interest of the loan against PPF will be 9.1%. The interest must pay-off within thirty-six (36) months from the date of the loan. If any reason the account holder fails to pay, then a penalty of an additional 4% interest will be applicable.
On repayment of the loan (principal+interest) within two months, the applied interest will get refunded back to the account. The next loan can be taken only after repaying the first loan.
Advantages of investing in Public Provident Fund (PPF)
PPF is a great choice for many who want good interest along with capital security. It can be said that the Public Provident Fund is the most popular long-term secure savings scheme offered by the Gov. of India. Here are some key advantages below:
- Tax benefit: Tax exemption is the most lucrative feature of the Public Provident Fund scheme. PPF falls under the EEE (exempt-exempt-exempt) TAX segment, which means the returns from the investment are completely tax-free. Additionally, the scheme offers the benefit of Tax deduction of Rs.1.5 lakh Under Section 80C income tax act.
- Interest-rate: In comparison, the interest rate on PPF is quite good. So, it may be a better option than bank FDs. As of January 2021, the current interest rate is 7.1% that compounds annually.
- Loan: The loan facility is accessible from the 3rd year to the 6th financial year according to the opening date of the account. This is beneficial for those who want to take short-term loans with an affordable interest rate.
- Nomination Facility: The Public Provident Fund Scheme allows one option to add one or more candidates as nominees.
Also read: Invest in PPF - 8 reasons you should know about
Some drawbacks of the Public Provident Fund scheme
- Withdrawl: The account holder cannot withdraw funds from the PPF account before completing seven years from the opening date. Only after seven years, withdrawal is allowed.
- Limit: Another major drawback is, one can not deposit more than Rs. 1.5 lakh in a financial year.
- Long-time lock-in period: Public Provident Fund (PPF) comes with 15 years of lock-in restrictions. Premature closure or partial withdrawal scope is very limited in this scheme.
- Unstable interest rate: The rate of interest of the PPF scheme is unstable and changes after each quarter.
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