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You may have often heard of a PPF account or a public provident fund. You may even have stopped to wonder about what a PPF is or what is a public provident fund. Worry you not, we have a detailed answer waiting for you!
PPF stands for Public Provident Fund. It is a long-term savings scheme brought to the people by the Government of India. It is ideal for investment if you want to have long-term savings or long-term financial goals. Therefore, lots of people choose to have a PPF account for their retirement savings.
In this article, we will talk about what is PPF, the public provident fund scheme, public provident fund benefits, and how to invest in PPF, among many other useful pointers! Read through this article to inform yourself thoroughly about the PPF scheme and make wise investment decisions.
Understanding the PPF Account
PPF stands for Public Provident Fund. It is a safe investment option that allows you to save on taxes. A PPF account also helps you earn guaranteed returns since it is a scheme started by the Government of India. A PPF investment is long-term.
It is ideal if you are planning to save up for long-term financial goals. These goals can involve plans like retirement plans and funding the education of your children. It helps you accumulate funds while reducing yearly taxes.
Any Indian citizen can open a PPF account. This includes salaried individuals, self-employed people, and minors. NRIs are not eligible to open a PPF under the PPF scheme or make a PPF investment.
There is only one type of PPF account that you can open. One person can only have one PPF account to their name. Parents can also open a PPF for their minor children.
The returns and interests earned on a public provident fund investment are not taxable under the income tax. It has an interest rate of 7.1% per annum. You can invest a minimum of Rs. 500 in your PPF account. The maximum amount that you can invest is Rs. 1.5 Lakhs per annum.
Under the PPF scheme, you have to open a PPF account. The amount that you deposit in a year can be claimed under Section 80C deductions.
Features of a PPF Account
| Features | Details |
| Investment Type | Long-term saving scheme |
| Initiated By | Government of India |
| Ideal For | Individuals planning long-term financial goals |
| Eligibility | Indian citizens (excluding NRIs) including minors |
| Account Limit | One per person; Parents can open for minors. |
| Interest Rate | Currently 7.1% per annum |
| Minimum Investment | Rs. 500 per year |
| Maximum Investment | Rs. 1.5 lakhs per annum |
| Tax Benefits | Section 80C deductions; Tax-exempt interest and withdrawals. |
| Tenure | 15 years, extendable indefinitely in blocks of 5 years. |
| Deposit Frequency | Minimum one deposit per year, maximum 12 deposit per year. |
| Deposit Methods | Cash, cheque, demand draft |
| Interest Calculation | Premature closure is allowed in specific circumstances. |
| Account Closure | Premature closure allowed in specific circumstances. |
How to Open a PPF Account?
Now that you know what is PPF, you may be wondering about how to invest in PPF. For that, you will first have to open a public provident fund account in the PPF scheme.
Opening an account involves a very simple procedure:
- Go to your nearest bank account or post office which is authorized to open a PPF account. You can also open your account online by visiting such banks’ websites or the Indian Post Payments Bank (IPPB) website.
- Provide your details in the account opening form like your name, address, phone number, etc. You can also nominate a person who will receive the returns of your account in case of your death.
- Make sure to submit all the required documents like photocopies of your PAN card, Adhaar card, address proofs like passport, etc.
- Deposit the amount that you want to invest. The minimum amount that you can invest in the PPF scheme of 500 Rs. The maximum amount is Rs. 1.5 Lakhs. You can deposit this amount in many ways- through cash, cheque, or demand draft.
- Once your account is opened, you will receive a passbook. This passbook will have the details of the account. These details involve the account number, the amount deposited, interest earned, etc.
What is PPF Interest Rate?
The Public Provident Fund (PPF) currently offers an attractive interest rate of 7.1% per annum for the period from October to December 2024. This interest is compounded annually and is credited at the close of the financial year. PPF serves as a long-term investment vehicle with a duration of 15 years, which can be extended in increments of 5 years. Investors can contribute between ₹500 and ₹1.5 lakh each year, and the interest accrued is exempt from taxes. To qualify for interest in a given month, deposits must be made by the 5th of that month. Additionally, PPF contributions provide tax advantages under Section 80C of the Income Tax Act.
PPF – Tax Benefits
Income tax exemptions apply to the principal amount invested in a Public Provident Fund (PPF) account. Under section 80C of the Income Tax Act of 1961, you can claim the full value of your investment for tax relief. It’s important to remember that the maximum principal investment allowed in a single financial year is capped at Rs. 1.5 Lakh.
Additionally, any interest earned on your PPF investment is also free from tax.
As a result, when you withdraw the total amount from your PPF account after it matures, it remains tax-free. This feature makes the PPF scheme highly appealing to numerous investors across India.
Procedure to Withdraw Money from PPF Account
To withdraw funds from your PPF account, simply follow these steps:
- Get Form C: This form is essential for both partial and full withdrawals. You can either pick it up at your bank branch or download it from the bank’s official website.
- Complete the Form: Fill in your PPF account number, the amount you wish to withdraw, and the reason for your withdrawal.
- Attach Required Documents: Make sure to include a copy of your PPF passbook along with any necessary identification documents.
- Submit Your Application: Hand in the filled-out form and accompanying documents at the bank branch where your PPF account is maintained.
- Await Processing: The bank will handle your request, and the funds will be transferred to your linked bank account.
PPF Account Forms
Here’s a breakdown of the different forms necessary for managing a PPF account:
- Form A (Form 1):
- Purpose: Opening a new PPF account.
- Details Required: Name, address, PAN number, initial deposit amount.
- How to Fill: Provide accurate personal details and the amount you wish to deposit initially.
- Form B:
- Purpose: Making deposits into the PPF account.
- Details Required: Account number, deposit amount.
- How to Fill: Enter your PPF account number and the amount you are depositing.
- Form C:
- Purpose: Partial and full withdrawals.
- Details Required: Account number, amount to withdraw, reason for withdrawal.
- How to Fill: Specify your PPF account number, the withdrawal amount, and the reason for withdrawal.
- Form D:
- Purpose: Applying for a loan against the PPF account.
- Details Required: Account number, loan amount, purpose of the loan.
- How to Fill: Provide your PPF account number and the amount you wish to borrow.
- Form E:
- Purpose: Adding or changing nominees.
- Details Required: Nominee’s name, address, relationship with the account holder.
- How to Fill: Enter the nominee’s details accurately.
- Form F:
- Purpose: Modifying or canceling nomination details.
- Details Required: Existing nominee details, new nominee details (if applicable).
- How to Fill: Provide the current nominee details and the changes you wish to make.
- Form G:
- Purpose: Claiming the PPF account proceeds by legal heirs or nominees.
- Details Required: Claimant’s details, proof of death of the account holder.
- How to Fill: Enter the claimant’s information and attach the necessary proof of death.
- Form H:
- Purpose: Extending the PPF account beyond 15 years.
- Details Required: Account number, extension period.
- How to Fill: Provide your PPF account number and specify the extension period.
These forms can be obtained from your bank branch or downloaded from the bank’s website. Make sure to fill them out accurately and attach any required documents.
PPF Calculators
PPF calculators allow you to project the final amount and interest accrued from your Public Provident Fund investments by taking into account your yearly contributions, the interest rate, and the length of your investment period.
Groww PPF Calculator
- Start by accessing the Calculator: Navigate to the Groww PPF Calculator page available here.
- Input Your Annual Investment: Enter the yearly amount you intend to invest. For instance, if you plan to invest ₹1,50,000 each year, input that figure.
- Choose Your Investment Duration: Select how long you wish to invest. The minimum period is 15 years, so for this example, we will go with 15 years.
- Specify the Interest Rate: The current interest rate for PPF is 7.1%. Make sure to enter this rate into the calculator.
- Hit Calculate: Click the “Calculate” button to view your results.
Example Calculation:
- Annual Investment: ₹1,50,000
- Investment Duration: 15 years
- Interest Rate: 7.1%
Results:
- Total Investment: ₹22,50,000
- Total Interest Earned: ₹18,18,209
- Maturity Amount: ₹40,68,209
This example illustrates that after 15 years, with an annual contribution of ₹1,50,000 at an interest rate of 7.1%, your PPF account will reach a maturity value of ₹40,68,209.
ClearTax PPF Calculator
- Visit the Calculator: Go to the ClearTax PPF Calculator page here.
- Enter Yearly Investment:
- Input the amount you plan to invest annually. For example, let’s say you want to invest ₹1,50,000 per year.
- Select Time Period:
- Choose the duration of your investment. The minimum tenure is 15 years. For this example, we’ll select 15 years.
- Enter Interest Rate:
- The current PPF interest rate is 7.1%. Enter this rate in the calculator.
- Calculate:
- Click on the “Calculate” button to see the results.
Example Calculation
- Yearly Investment: ₹1,50,000
- Time Period: 15 years
- Interest Rate: 7.1%
Results:
- Total Investment: ₹22,50,000
- Total Interest Earned: ₹18,18,209
- Maturity Amount: ₹40,68,209
This calculation shows that after 15 years, with an annual investment of ₹1,50,000 at an interest rate of 7.1%, your PPF account will mature to ₹40,68,209.
ET Money PPF Calculator
- Visit the Calculator: Go to the ET Money PPF Calculator page here.
- Enter Yearly Investment:
- Input the amount you plan to invest annually. For example, let’s say you want to invest ₹1,50,000 per year.
- Select Time Period:
- Choose the duration of your investment. The minimum tenure is 15 years. For this example, we’ll select 15 years.
- Enter Interest Rate:
- The current PPF interest rate is 7.1%. Enter this rate in the calculator.
- Calculate:
- Click on the “Calculate” button to see the results.
Example Calculation
- Yearly Investment: ₹1,50,000
- Time Period: 15 years
- Interest Rate: 7.1%
Results:
- Total Investment: ₹22,50,000
- Total Interest Earned: ₹18,18,209
- Maturity Amount: ₹40,68,209
This calculation shows that after 15 years, with an annual investment of ₹1,50,000 at an interest rate of 7.1%, your PPF account will mature to ₹40,68,209.
What is PPF Account in SBI?
A Public Provident Fund (PPF) account with SBI is a great long-term investment option, offering tax benefits and competitive interest rates. Key points include:
- Interest Rate: 7.1% per annum
- Investment Limits: Minimum deposit of ₹500, maximum of ₹1.5 lakh per year
- Tenure: 15-year lock-in, extendable in 5-year increments
- Tax Benefits: Contributions are tax-deductible under Section 80C, and interest is tax-exempt
- Withdrawals/Loans: Partial withdrawals allowed from the 7th year; loans available between the 3rd and 6th years
To open a PPF account, visit an SBI branch or use their online banking.
Deposits and Withdrawals
The minimum amount that you can deposit into your PPF account is Rs. 500. The maximum amount of public provident fund investment that you can make is Rs. 1.5 Lakhs.
Investors can make deposits in their PPF accounts as per their schedule but there are certain limitations one has to bear in mind. An investor can make a minimum of one and a maximum of 12 deposits in a financial year to their public provident fund account. The combined amount deposited should not exceed Rs. 1.5 Lakhs in a financial year.
The amount that you want to invest can be submitted through cash, cheque, or demand drafts to the banks or post office where you have opened the PPF account.
The Finance Ministry sets the interest rates for public provident fund investment every year which is paid on 31st March. This interest is calculated on the lowest balance between the fifth day and the last day of every month.
All deposits made to a PPF account are deductible to Section 80C of the Income Tax Act in the Constitution. The amount of interest earned on the amount invested is also exempted from tax when you withdraw it. However, it is to be noted that public provident fund accounts cannot be closed prematurely.
Tenure and Extension
A PPF account has a tenure of 15 years. Investors can extend this tenure by 5 years when the account reaches maturity. Extensions can be sought indefinitely in blocks of 5 years every time the account matures.
During the period of extension, investors cannot make fresh contributions to their accounts. The interest will continue adding up at the prevailing rate. The investor can withdraw the entire balance amount at any point during the extended period.
The PPF lock-in period is 15 years and the public provident fund account cannot be closed before it matures. However, some circumstances can help you make an exception to this rule. These include:
- In case of the death of the account holder, the account can be closed prematurely.
- If the account holder changes their residence to somewhere outside of India, their account can be closed prematurely. They will need to produce proof of their change of residence though.
- If the account holder or their minor child is set to receive higher education and needs money for it, the account can be closed in such a case.
Benefits of PPF
The Public Provident Fund is a highly popular long-term investment scheme in India. This is so because of the benefits that it offers. Let us look at some PPF benefits:
- Tax benefits: The interest earned on the money invested in the public provident fund scheme is tax-free. PPF tax benefit allows investors to save on taxes.
- High returns: The PPF accounts have a higher rate of returns as compared to the other fixed-income investment schemes available. The interest rate is 7.1% per annum as of 2023.
- Low risk: The public provident fund scheme is offered by the Government of India and therefore, has guaranteed returns. This makes it safe and low-risk as an investment option.
- Long-term savings: The PPF lock-in period is 15 years which makes it an ideal scheme for investing in long-term savings.
- Loan facility: PPF accounts allow their investors to take loans on the balance amount after the completion of their third financial year. The loan can be paid off in installments.
Drawbacks of PPF
Having a PPF account comes with its own set of drawbacks. These are:
- Long lock-in period: The PPF lock-in period is 15 years. This means that the investors cannot withdraw their funds from their accounts until the account has matured. This is not suitable for people who may require funds in the short term.
- Annual deposit requirement: There are limitations on how much one can invest in a PPF account. A minimum of Rs. 500 and a maximum of Rs. 1.5 Lakhs can be invested in the public provident fund scheme.
- Limitations on deposits: You can also only make 12 deposits in a financial year and the amount combining all of your deposits should not exceed 1.5 Lakhs.
- No liquidity: Due to the 15-year lock-in period of the PPF scheme, there is no liquidity provided to the investors. They cannot withdraw their funds before the account matures. This makes things hard for investors who need their money in a short amount of time.
How Does PPF Stack Up Against Other Investment Options
PPF V/S Fixed Deposit
- The interest rate set by the government for PPF is currently higher than the rate set for Fixed Deposits.
- The lock-in period of PPF is 15 years whereas for FD, it can vary anywhere between 7 days to 10 years.
- PPF offers tax benefits whereas FD does not. Its interests are taxable.
- There is no upper limit for investment in FD but there is a limit of Rs. 1.5 Lakhs in public provident fund accounts.
PPF vs Mutual Funds
- Mutual funds are subject to market risks and therefore offer higher returns than public provident fund investments.
- PPF has a lock-in period of 15 years whereas mutual funds do not have a lock-in period.
- Mutual funds can be volatile because they are subject to market risks but public provident fund accounts are safe, low-risk investments.
Public Provident Funds have certain advantages over other investment options which makes them so popular. These advantages include:
- They are safe, low-risk investments.
- They have guaranteed returns.
- They are good for long-term investments since they have a lock-in period of 15 years.
- They allow for partial withdrawals and loans before their lock-in period is complete.
- They offer huge tax benefits of up to Rs. 1.5 Lakhs per annum.
Secure Savings and Long-Term Growth
In this article, we learned about what is PPF, the public provident fund tax scheme, PPF tax benefits, etc. The public provident fund is a low-risk, safe investment option for those people who are looking for long-term investments. One may even choose a nominee for their account and these accounts can be opened for minors as well.
The PPF lock-in period is 15 years but partial withdrawals and taking loans on your public provident fund balance are allowed. All in all, it is a great scheme because it also offers you tax benefits. Interests and returns earned on PPF investments are not liable to taxation under Section 80C of the Income Tax Act.
Want to explore helpful techniques to save and grow your hard-earned money? Dive into our guide on Save Money.
Conclusion
The Public Provident Fund (PPF) is a government-supported long-term savings initiative in India, aimed at promoting small-scale savings and investments among the populace. This scheme provides a safe investment avenue with attractive interest rates and considerable tax incentives. PPF accounts are subject to a 15-year lock-in period, which can be extended in increments of five years, and permit partial withdrawals starting from the seventh year. It is particularly suited for conservative investors who desire consistent returns and tax benefits, thereby serving as an effective means of establishing a secure financial future.
Frequently Asked Questions (FAQ’s)
What is the minimum and maximum amount I can deposit in a PPF account?
In a Public Provident Fund (PPF) account, the minimum annual deposit is Rs. 500, while the maximum contribution allowed per financial year is Rs. 1.5 lakh. This flexibility allows individuals to invest according to their financial capabilities. It is important to note that the deposited amount should be within these limits to avail of the benefits associated with a PPF account.
Can I open multiple PPF accounts?
No, an individual is not allowed to open multiple PPF accounts for themselves. According to the rules, a person can have only one public provident fund account in their name. Opening multiple accounts is considered a violation and can lead to penalties. However, they can contribute to a PPF account in the name of their spouse or children, subject to the overall contribution limit of Rs. 1.5 lakh per financial year.
Is premature closure of a PPF account allowed? What are the penalties?
Premature closure of accounts is allowed only under certain circumstances which include medical emergencies, higher education, and death of the account holder. The penalty amount is equal to 1% lower than the interest rate applicable to the PPF account.
What is PPF and how it works?
The Public Provident Fund (PPF) is a government-supported savings program in India designed for long-term financial growth, providing both tax benefits and reliable returns. With a mandatory lock-in period of 15 years, it can be extended in increments of 5 years, and investors can make partial withdrawals starting from the 7th year. This scheme is perfect for those who prefer low-risk investments while enjoying stable growth and tax incentives.
How much will I get after 15 years in PPF?
The total amount you can expect from your PPF after 15 years is influenced by how much you contribute each year and the current interest rate. For example, if you invest ₹1.5 lakh every year at an interest rate of 7.1%, you might accumulate approximately ₹40 lakh. Keep in mind that the final figure will fluctuate depending on the interest rate and your regularity in investing.
Is PPF better than FD?
PPF is typically a superior option for long-term savings because of its tax advantages and government support, ensuring consistent returns over a 15-year period. In contrast, fixed deposits offer guaranteed returns with varying tenures but might yield lower returns after taxes. Ultimately, your decision should be guided by your investment timeline and tax implications.
Is PPF a good investment?
Certainly! PPF is an excellent choice for those looking to achieve long-term financial objectives. With its tax advantages, government support, and consistent returns, it provides a reliable method to enhance your savings. The interest and maturity amounts are tax-free, making it particularly appealing for conservative investors who prioritize both security and growth.
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