Overview of the Public Provident Fund

Overview of the Public Provident Fund

The Public Provident Fund (PPF) is a long-term savings device established by the Central Government. It offers tax advantages on contributions as well as abandonment after the lock-in period. This scheme came into force on July 1, 1968, and is supported by the government to provide old-age income security to the self-employed and those operating in the unorganized sector. Though the scheme is voluntary, guaranteed returns and income-tax benefits have fuelled its popularity. The primary purpose of saving in the PPF account is to avail tax deduction on deposits, assured returns on investment, and tax-free withdrawal on maturity. Savings in this result are completely risk-free because of government backing.

Capital Protection & Inflation Protection

The capital in a PPF account is fully protected as the scheme is backed by the Government of India, making it fully risk-free with ensured returns. The PPF account is however not increase protected, which means whenever inflation is above the most advanced guaranteed interest rate, the deposit earns no real returns. However, when the expansion rate is below the guaranteed rate, it does maintain a positive real rate of return.

Guarantees

Interest rates are aligned with G-sec rates of comparable maturity, with a spread of 0.25 percent. The government has determined to review the PPF rates quarterly. For the fourth quarter of FY20-21, the time has been set at 7.1 percent compounded annually.

Liquidity

The PPF is liquid, notwithstanding the 15-year lock-in stipulated with this account. Liquidity is submitted in the form of loans against the PPF from the third year and withdrawals subject to conditions from the seventh year.

Tax Implications

The scheme has an exempt-exempt-exempt (EEE) station, where the deposits, the interest received as well as the maturity amount are tax-free.

The sum spent in the PPF account is eligible for tax deduction under Section 80C subject to a preponderance of Rs 1.5 lakh in a financial year. On maturity the complete product including the interest is tax-free.

Where to Begin an Account

You can begin the account at various places such as:

  • Any head post office or general post position
  • State Bank of India
  • Branches of nationalized banks before-mentioned as Bank of Maharashtra
  • Private-sector banks before-mentioned as ICICI Bank

How to Open an Account

Once you have decided the location to open an account, you will need the following:

  • An account-opening application
  • Two passport-sized photographs
  • Address and identity documentation such as the Aadhaar card, passport, PAN (permanent account number) card or declaration in Form 60 or 61 as per the Income Tax Act, 1961, pushing license, voter's identity card, or ration card.
  • Carry original identity proof for confirmation at the time of account opening.
  • Choose a candidate.

How to Contact a PPF Deposit

  • You need a pay-in-slip with the original account-opening sum to be credited into your account
  • You get a PPF passbook with your photo attached, stating the nominee's name.

Exit Option

Earlier, untimely closure of a PPF account was not allowed. However, it is now possible to close your PPF report pre-maturely at a penalty of one percent on the interest. But it can be made only after the completion of five financial years, presented the property is required for the treatment of serious ailments of the record holder, spouse, dependent children, dependent mothers, or for higher education.

Tips and Tactics

  • Exhaust the full investment allowed to avail tax deduction on the first day of each financial year. This will guarantee that your yearly investment earns credit for the complete year, enjoys the compounding effect, and accumulates a significant sum over the long term.
  • Deposit the PPF addition between the first and fifth of the month to earn interest for the whole month.

Features at a glance:

Eligibility: You require to be a resident Indian

Entry age: No age is defined for account opening

Minimum Investment: Rs 500 per annum

Maximum Investment: Rs 1.5 lakh per annum.

Interest: 7.1 percent increased annually for the period January-March, 2021. Interest rates are subject to revision every quarter.

Tenure:

  • 15 years
  • On completion of 15 years, the story can be extended by five years at a time
  • The PPF account develops after 15 years but the contribution has to be made for 16 years in all. The 15-year period is thought from the financial year following the date on which the report is opened. Effectively, the PPF record matures on the first day of the 17th year. However, it can be increased indefinitely, 5 years at a time.

Account-holding classes

  • Individual
  • Minor through the custodian

Nomination Facility: Available