Sometime and somewhere we all people had heard about the PPF account and investment in it to save taxes, but still people are not sure about the benefits of investing in PPF account, the rate of return from PPF account and other useful things that they are required to know about the investment instrument. So this article will let you know all the details that a investor is required to know about the Public Provident Fund (PPF) Account.
What is PPF Account?
Public Provident Fund (PPF) Account is Government of India scheme for long term savings and which offers attractive tax free returns. Any Individual who are resident in India can open and invest in a PPF account to earn tax free returns on their investment which is usually more than the return on routine fixed deposits of the banks and other financial institutions.
Who can open a PPF Account
A Resident Individual can open a PPF Account in any post office or any authorised bank branch. A PPF account can also be open on behalf of a minor child by his guardian. However, Non Resident Indians (NRIs) and HUFs are not eligible to open an account under PPF scheme. But in case a person opens a PPF account when he is a resident in India and subsequently he becomes NRI, than also he’s eligible to take benefit of the scheme until its matured. An individual can open only 1 PPF account.
What is maximum and minimum amount that can be invested in a PPF Account?
The minimum amount to be invested every year in PPF account is Rs. 500 and maximum amount that an Individual can invest is Rs. 1,00,000 each year through a maximum of 12 instalments. If a person fails to invest minimum Rs. 500 in the PPF account for a year than a penalty of Rs. 50 for each year the failure happens is charged along with the arrears of subscription of Rs. 500 for each such year.
What is the interest rate on PPF Account?
The interest rate on PPF account is announced every year by RBI in month of March-April. The PPF interest rate for the year 2013-14 is 8.7% which was 8.8% for the year 2012-13.
How interest is calculated on PPF account?
Interest on PPF account is compounded annually, but calculation is done every month on the lowest balance between the fifth and last day of each month which is credited to the account at the year end.
When does PPF account mature?
PPF account matures in 15 years from the date on which it was opened and can be closed after the maturity. The whole of the amount can be withdrawn on closure of the account, which is tax free amount. In case you don’t want to withdraw the fund even after maturity of your PPF account you can further extend the PPF account for a tenure of 5 years.
What are the requirements of pre-mature withdrawal from PPF account?
There is lock in period of 5 years for PPF account and partial withdrawals from the PPF account are allowed only after completion of 5 years. The maximum amount that can be withdrawn from PPF account after 5 years is 50% of the amount that stood in the PPF account at the time of withdrawal. If the account holder has taken any loan against the PPF account than 50% is calculated after deducting the loan amount.
Loan on PPF account
Loan on PPF account can also be availed by the account holder, subject to certain terms and conditions. Loan could be taken from the third financial year excluding the year of deposit. Amount of such loan could not exceed 25% of the amount in the account holder at end of second year immediately preceding the year in which the loan is applied for. The loan must be repaid in maximum of 36 months either in instalments or in a lump sum. The interest rate on the loan is 1% more than PPF interest rate. If a person is unable to repay the loan within 36 months than the interest rate on outstanding amount will be raised to 6% more than PPF interest rate.
Benefits of Investing in PPF account
The amount invested in PPF is tax free at all the three stages. When you invest any amount in PPF, the amount is eligible for 80C deduction. The interest earned on PPF is also Tax-free and also the withdrawals from PPF are tax-free. Amount in PPF account is also exempt from Wealth Tax.
PPF is always better option for investing as compared to Tax Saving Fixed Deposits as the interest received on PPF is tax free while the interest earned on FDs are liable for tax, so effective rate of interest on PPF is always higher.