Public Provident Fund (PPF) was introduced in India in 1968 with the objective to mobilize small saving in the form of investment, coupled with a return on it. It can also be called a savings-cum-tax savings investment vehicle that enables one to build a retirement corpus while saving on annual taxes. Anyone looking for a safe investment option to save taxes and earn guaranteed returns should open a PPF account. In this article, we cover the following topics:
Public Provident Fund (PPF) scheme is a long term investment option which offers an attractive rate of interest and returns on the amount invested. The interest earned and the returns are not taxable under income Tax. One has to open an PPF account under this scheme and the amount deposited during a year will be claimed under section 80C deductions.
A PPF account can be opened with either a Post Office or with any nationalized bank like the State Bank of India or Punjab National Bank, etc. These days, even certain private banks like ICICI, HDFC and Axis Bank among others are authorized to provide this facility. You need to submit the duly filled application form along with the required documents i.e. the KYC documents like identity proof, address proof, and signature proof. Post submitting these documents you can deposit a prescribed amount towards the opening of the account.
The current interest rate is 7.1% p.a. (for the quarter 1 October 2020 to 31 December 2020, until 31st March 2020 it was 7.9% p.a.) that is compounded annually. The Finance Ministry set the interest rate every year, which is paid on 31st March. The interest is calculated on the lowest balance between the close of the fifth day and last day of every month.
As a rule, one can fully withdraw the PPF account balance only upon maturity i.e. after the completion of 15 years. Upon completion of 15 years, the entire amount standing to the credit of an account holder in the PPF account along with the accrued interest can be withdrawn freely and the account can be closed.
However, if account holders are in need of funds, and wish to withdraw before 15 years, the scheme permits partial withdrawals from year 7 i.e. on completing 6 years.
An account holder can withdraw prematurely, up to a maximum of 50% of the amount that is in the account at the end of the 4th year (preceding the year in which the amount is withdrawn or at the end of the preceding year, whichever is lower). Further, withdrawals can be made only once in a financial year.
In case you wish to partially or completely withdraw the balance lying in your PPF account.
Step 1: Fill in the application form using Form C with relevant information.
Step 2: Submit the application to the concerned branch of the bank where your PPF account lies.
This form is available for download here.
This form has 3 sections:
Declaration section where you must provide your PPF account number and the amount of money you propose to withdraw. Along with that, you also need to mention how many years have actually passed since the account was first opened.
Office use section which comprises of details like:
Bank details section which asks for the details of the bank where the money is to be credited directly or the bank in whose favor the cheque or the demand draft is to be issued.
It is also mandatory to enclose a copy of the PPF passbook along with this application.
PPF is one investment vehicle that falls under the Exempt-Exempt-Exempt (EEE) category. This, in other words, means that all deposits made in the PPF are deductible under Section 80C of the Income Tax Act. Furthermore, the accumulated amount and interest is also be exempt from tax at the time of withdrawal.
It is important to note that a PPF account cannot be closed before maturity. A PPF account, however, can be transferred from one point of designation to another. But, do remember that a PPF account cannot be closed prematurely. Only in the case of the account holder’s demise can the nominee’s file for the closure of the account.
Q. Is it mandatory to withdraw the PPF account balance at the end of the 15 years?
A. It is not mandatory for you to withdraw the PPF balance at the end of the maturity period, i.e. 15 years. You can let the money stay in the account so that it accrues interest as long as you close the account.
Q. Can I extend the tenure of the account for 3 years since I may need the sum then?
A. You can only extend the account tenure in the blocks of five years upon maturity.
Q. How many times am I allowed to extend the tenure in the blocks of five years?
A. There is no upper limit on the number of times you can extend the tenure of the account as long as you extend it in the blocks of five years. However, you can only extend the tenure upon the maturity of each block.
Q. I don’t think I can continue to contribute to my PPF account anymore. Can I close my account?
A. Individuals are allowed to close their PPF account only after completing five years. Also, there are certain criteria to be satisfied in order to close the account.