As we all aware that the Public Provident Fund (PPF) is considered as most important and safe amongst all tax saving investments schemes. This scheme is falls under the EEE category i.e Exempt, Exempt and Exempt which actually means if you invest in it, you will get a deduction u/s 80C on your income. Further, the interest you earn on it alongwith its maturity proceeds will be tax-free in the hand of investor.
Hence after looking into the importance and popularity of PPF scheme I have covered here 10 most important things related to Public Provident Fund (PPF) which you should aware of.
PPF accounts can be opened in a post office or in selected bank branches. The regular KYC documents need to be submitted for opening a PPF account with a minimum investment of Rs.500.
The current interest rate for PPF is 7.90% p.a for the April–June quarter 2017. The interest rate will change every quarter in accordance with the government bond yield.
For the balance amount in your PPF account the interest is compounded annually. However, the interest calculation is done each and every month.
If your contribution to the PPF account is credited on or before 5th of that month, then that contribution will bear interest for that month too. If it is credited after 5th of that month, you will get interest only from the subsequent month. Therefore, if you make sure your contribution is getting credited in your account on or before 5th of that month, and then you will not miss the interest for that month too.
Under Section 80C, whatever the contribution you make in PPF is eligible for tax deduction subject to overall limit under section 80C. Also the interest from PPF is also tax free.
The minimum amount needed to be invested every year is Rs.500. The maximum amount of investment allowed every year is Rs.1.50 lakh. If your minor child also holds a PPF account then the combined limit of both the PPF account is limited to Rs. 1.50 lakh.
Not making the minimum investment in a year will attract a minimum penalty.
A PPF account will mature at the end of the 15th year. This can be extended for one or more blocks of 5 years thereafter.
Yes. You can withdraw after the 6th year. However, you can withdraw only up to 50% of the balance at the end of 4th year or at the end of immediate preceding year whichever is lower. You will be allowed to withdraw only once in a year.
Yes. You can avail the loan facility only from the 3rd year. You will be allowed to take a loan to the extent of 25% of the balance in the previous year.
NRI can’t open a PPF account. If you open a PPF account as a resident and subsequently you become an NRI, you will be allowed to continue and contribute till its maturity on a non-repatriable basis.
In the event of the death of the PPF account holder, the balance amount in the PPF account will be paid even before the completion of 15 years, to the nominee or legal heir of the deceased person. The nominee or the legal heir is not allowed to continue the PPF account by making fresh contributions to it.
PPF is an excellent tax saving option. It needs to be part of your tax saving investment or not, depends upon your overall tax plan and asset allocation for the current year. Do your tax plan and check PPF fits into your tax plan or not in the current year.
An account holder shall be allowed premature closure of his account or the account of a minor or person of unsound mind of whom is the guardian on an application to the accounts office in Form-5, on any of the following grounds:
(a) treatment of life threatening disease of the account holder, his spouse or dependent children or parents, on production of supporting documents and medical reports confirming such disease from treating medical authority;
(b) higher education of the account holder or dependent children on production of documents and fee bills in confirmation of admission in a recognised institute of higher education in India or abroad;
(c) on change in residency status of the account holder on production of copy of Passport and visa or Income tax return.
Please note that an account under this Scheme shall not be closed before the expiry of five years from the end of the year in which the account was opened
Also, the premature closure, interest in the account shall be allowed at a rate which shall be lower by one per cent than the rate at which interest has been credited in the account from time to time since the date of opening of the account, or the date of extension of the account, as the case may be.
The author is Ramalingam.K an MBA (Finance) and certified financial planner. He is the Director & Chief Financial Planner of holistic investment planners (www.holisticinvestment.in) a firm that offers Financial Planning and Wealth Management. He Can be reached at [email protected]