Got your first-month Salary!!! Also, some amount had already been deducted as Income Tax and now you are thinking about how to reduce your tax outgo and increase your Take Home Salary. Now you have asked your parents and colleagues regarding Tax Savings Scheme. Probably they had told you about the term 80C, LIC, PPF, etc.

Now you will find each and every information about PPF (Public Provident Fund) here. So let’s get started.

# Is PPF safe? Can Private Bank run with my money?

PPF is Govt. Of India run a small savings scheme as per Provident Fund Act, 1968 and it’s completely safe. Basically, it’s tax savings cum investment vehicle that helps to build a retirement corpus. Also, it enjoys the status of EEE (Exempt-Exempt- Exempt) meaning investment, interest earned on it, and maturity corpus is tax-free. Money stays with Central Govt. and financial institutions get small fees fee for collecting contribution amounts.

Features of PPF are as follows:

  • Tenure: Tenure is 15 years and thereafter it can be extended in block of 5 years. Account matures on completion of fifteen complete financial years from the end of the year in which the account was opened. Suppose for any PPF account opened during April’20 – March’21 will have maturity date on 1st April, 2036(15 to be added 2022 i.e. next financial year).
  • Investment Limit: Minimum Rs. 500 to be deposited and maximum Rs 1,50,000 can be deposited. Non contribution of minimum subscription amount will result in “Discontinued Account” and to revive such account panel fee of Rs.50 and minimum subscription amount of Rs.500 to be deposited for such defaulting years.
  • Tax Benefit : Contribution to PPF scheme qualifies for tax deduction under Section 80C of Income Tax Act. Interest earned on it also exempt from Income Tax under Section 10 of Income Tax Act. Maturity amount also exempt from Wealth tax.
  • Loan Facility and Rate of Interest: Loan can be availed from 3rd financial year to 6th financial year up to 25% of amount to his credit at the end of second year immediately preceding year in which loan has been applied. Only one loan can be applied in a year and also all previous should be repaid in full. Well this bit looks little confusing, let me help out with one example –

ppf table 1

Example: Suppose PPF account opened during the financial year 2016-17( from 1st April 2016 to 31st March 2017). So loans can be availed from FY 2018-19 to FY 2022-22. Amount of loan can be availed as follows :

Here Amount standing to his/her credit means Amount including interest for that financial year also.

Here the rate of interest on the loan is just 1% and principal amount of the loan is to be repaid in 36 months and interest is to be repaid in the next 2 months within 2 no installments.

  • Partial Withdrawal: Partial withdrawal can be made from 7rd financial year onwards up to 50% of amount to his credit which is minimum of – (I) Amount at the end of fourth year immediately preceding year of Withdrawal and (II) Amount at the end of preceding year. Only partial withdrawal can be made in a year provided that Account had not become DISCONTINUED and any loan had been repaid in full. Let us understand this with the help of following example –
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Example: Suppose PPF account opened during the financial year 2016-17( from 1st April 2016 to 31st March 2017). So partial withdrawal can be made from FY 2023-24 onwards. Amount of loan can be availed as follows :

  • Premature Closure: Premature closure of PPF account can be done only from 7th financial year on meeting any of the following stringent conditions :

(a) Treatment of life-threatening disease of the account holder, his spouse or dependent children or parents, on the 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 the production of documents and fee bills in

confirmation of admission in a recognized institute of higher education in India or abroad.

(c) On change in residency status of the account holder on production of a copy of Passport and visa or Income tax return.

On such premature closure rate on PPF account shall be 1% lower than applicable Rates. Also, the interest calculation will be done from the Opening of PPF account/Extension of PPF account whichever is applicable.

  • PPF after Completion of Maturity : Here comes the most confusing part of PPF which is also of utmost importance to understand to maximize return of PPF. There two option after maturity :

(I)Closure of account and you withdraw PPF.

(II)Continuation of the account without contribution: In such case balance amount in the account will continue to earn applicable interest and it can be continued indefinitely. Also, only one withdrawal can be made in a year, and also there is no capping on the amount of withdrawal.
(III) Continuation of account with contribution: In this case, the Option had to be submitted for extension of PPF account for a block of 5 years. Also, such extension for a block of 5 years can be done any no times after the end of such block and also Option to be submitted within 1 year after maturity of account/ end of 5 year block period whichever is applicable. Also, an account will fall in the 2nd Category as mentioned above and there will be no option to continue the account with a contribution. Once the extension of PPF account is submitted, then there is no option to withdraw the request at a later stage. Also, partial withdrawal can be made in the year of block period in the condition that the total of such withdrawal does not exceed 60% of the amount standing to his credit at the start of the block period. Also, a nomination can be done online in SBI through Net banking or by sending an email to the branch. For detailed procedures follow this link.

  • Nomination Facility: It’s recommended to add nominee to your PPF account. As in case death and no nominee is there, then amount up to 1 lakh can be can be paid to legal heirs of production of (i) letter of indemnity, (ii) an affidavit, (iii) a letter of disclaimer on affidavit and (iv) certificate of death on stamped paper in the forms in Annexure to Form G. For the amount exceeding 1lakh, Court order /Succession Certificate is required which is cumbersome task. So it’s recommended to add nominee to your PPF account to avoid such hassles.
  • Attachment of PPF A/C for Recovery of Debt: Balance in PPF account cannot be attached to any Court Order/Decree for recovery of debt/liabilities. PPF offers inherent protection from such cases.
  • PPF for Minor Child : PPF account can be opened on behalf minor by the guardian. However investment limit of 1.5 lakh is applicable inclusive of contribution made in PPF account of Individual and PPF account on behalf of minor.
  • Rate of Interest : Here comes the main business. How much can I get from PPF? Well lets look at the historical return of PPF.
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The above graph shows how PPF Interest Rate has varied over time. However, in recent time a downward trend had been observed.

  • Interest Calculation : Interest is calculated on the lowest balance between close of fifth day and end of the month. So to maximize return, deposit should be made on or before 5th of month. Account shall be opened with initial deposit of minimum 500 rupees and thereafter deposit of any sum multiple of fifty rupees can be made.  

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