Tuesday, October 22

All About Public Provident Fund



PPF scheme introduced by Central Govt is a very popular and easy to invest scheme. The scheme enables the members of public to make contribution to the fund and obtain income tax benefit. Central Govt has started this scheme to provide old age income security to the workers in the unorganized sector and for the self employed individuals. PPF account is effective tax saving vehicle which gives you amazing return for the sunset years with zero risk.




Who is eligible??

  1. Individuals
  2. Individuals on behalf of minor
The account can be opened with Rs. 500 minimum deposit with any branch of State Bank of India, branches of few nationalized banks and at any head post office or general post office.

Minimum and maximum amount of investment:

The minimum amount of deposit in PPF account is Rs.500 and the maximum amount is Rs.100000 in one while financial year. This amount can be deposited in lump sum or in installment. If account holder chooses to deposit the amount in installments then only 12 installments are permitted.

Duration of the PPF account:

PPF account has its expiry only after completing 15 years from the the date of opening of its account, means account holder can withdraw the whole amount on its expiry only. However one can extend the duration by applying for further time period of 5 years. After expiry of the account if account holder retains the balance as it is without investing further, it will earn interest till withdrawal.

Rate of interest:

Interest rate on PPF is currently 8.8% (w.e.f 01-04-2012) earlier it was 8.6% from Nov’ 2011 and 8% before that. Interest is calculated on the minimum balance between the 5th day and the end of the month.

Loans & Withdrawals:

  • A loan can be taken against up to 25% of the balance at the end of the first financial year from the third to sixth year. Next loan can be taken on repayment of previous loan only. So if the account is opened in 2007-08 the loan can be taken during financial year 2009-10
  • Account holder can withdraw amount from his PPF account during any one year from six years. The maximum amount he can withdraw is 50% of the amount standing to his account;
    1. at the end of 4th year or
    2. at the end of previous year in which withdrawal is sought to be made whichever is less.
  • After the initial 15 year periods if you choose to extend the account and just maintain the balance, you can withdraw the entire sum in a lump sum or in installments. If you withdraw money in installments, you can not make more than one withdrawal a year. If you continue to deposit money in your account you can withdraw up to 60% of the balance to your credit at the beginning of each extended period (block of five years).

Tax Benefits:

  1. Investment made in PPF is eligible for deduction u/s 80C.
  2. Interest on PPF is totally exempt from tax.
  3. Amount standing to the credit of PPF account is fully exempt from wealth tax.
  4. Deposits in the name of spouse and minor are also eligible for deduction u/s 80C
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