Public Provident Fund (PPF)
The Public Provident Fund or PPF, is a
fund created by the central government to help people to invest in it which promises reasonable returns combined with
income tax benefits. The Public Provident Fund account is one of the
savings-cum-tax-saving investment instruments introduced by the
government during 1968, by the National Savings Institute of the
Ministry of Finance.
The main aim behind this scheme is to mobilize small savings
from investors for a long period. The scheme is fully guaranteed from
the Central Government and this makes it best suitable for risk-averse
investors who defer investing in riskier assets.
Public Provident Fund
The main feature of this scheme is that a PPF account is not subjected
to attachment under any order or a decree from a court if in case an
investor is bankrupt or has defaulted to repay the loan.
But only the Income Tax and other Government authorities can attach the
account for recovering tax dues.
The government of India reintroduced the Public Provident Scheme, 2019
on December 12, 2019, replacing the earlier one as the scheme is subject to amendment periodically.
This PPF account is one of the popular forms of investment schemes
amongst investors owing to its multiple investor-friendly features and
its related benefits.
The long-term investment features with stable
returns are suited for those who prefer higher returns. The prime target
of individuals who opt for this account is the proper safekeeping of
the principal amount.
As the plan is
introduced and endorsed by the government, it is backed up with
guaranteed returns thus safeguarding the financial needs of the
investors in India. An investment made in PPF account is not exposed to
market volatility and hence this account remains popular amongst
middle-class income people in India.
Eligibility Criteria
The Resident Indians are eligible to open a PPF Account in his / her
name in any of the banks, post offices. Parents can open and operate a
PPF account in the name of the minor kids.
However, the NRIs cannot open a new public provident
fund account. If in case, if they already have one PPF account then the
same will remain active till the completion of the tenure and they
cannot be extended for additional five years, a benefit which is solely
available for the resident Indians.
Nomination
An investor can opt for nomination facility in a PPF account in the name
of one /more persons. The sharing ratio of the nominees can also be
pre-defined by the account holder.
Features
The following is the list of features of Public Provident Fund Account:
1. Amount of Investment
The main feature of the PPF account is it can be opened with a mere Rs
500 per annum and the investors can deposit up to a maximum of Rs
1,50,000 in a year. This investment can be done in one go (lump sum) or
can be paid in installments as per the convenience of the investor. But
one has to keep in mind that an investor can pay for only 12 yearly
installments into a PPF account. The account holder has to ensure that
the account remains active throughout the tenure of 15 years from the
date of opening the account.
2. Tenure
The period of investment in case of a public provident fund is for 15
long years, which means the lock-in period is 15 – years. Before the end
of the tenure, the account holder cannot withdraw the invested money
fully. If required, then the investor can choose to extend the tenure of
the PPF account by 5 more years post-lock-in period. PPF is one of the
saving accounts in India which has long tenure but it guarantees higher
returns and is safe as it is backed by the central government.
3. Safety
Depositing the hard-earned money in PPF account is safe as it is backed
by the government and is one of the long – term tax-free saving schemes.
An investor need not have to worry about his or her invested money as
the returns from this scheme is guaranteed and are higher compared to
other forms of investments available in the country. The money will be
locked in the account for 15 long years and returns will be calculated
based on the compound interest. Only post offices, nationalized banks
and a few selected private banks offer this account for investors.
4. Income Tax Benefits
The principal amount invested in a PPF account is exempt from Income
Tax. The entire value of an investment can be claimed as tax exemption
under Section 80C of the Income Tax Act of 1961. The Public Provident Fund (PPF) falls under the
EEE (Exempt Exempt Exempt) category of Income Tax. This means, the
principal amount, interest earned on the investment and the final
maturity amount are completely exempt from the Income Tax and hence it
offers triple exemption benefits.
5. Loan against Investment
The Public Provident Fund account provides benefit to the investor in
availing loans against the invested amount. But to avail this facility,
one can apply for a loan at any time starting from the 3rd year till the
end of 6th year from the date of opening of the account.
The maximum period of loans against a PPF account is 36 months. The
account holder can take a loan of only 25% or less of the total amount
available in the account.
6. Interest Rate
The interest rates of the public provident fund account are higher when
compared to the savings account, fixed deposits offered by many banks,
financial institutions and post offices. The interest rates of PPF
account is determined by the central government and is subject to change
every quarter.
How to Open a Public Provident Fund (PPF) Account?
Interested investors who are looking to open a PPF account can do so by
both online and offline method provided if he / she meets the
eligibility criteria as stated by the central government to open a PPF
account. Individuals who prefer to open a PPF account through online
mode have to first visit the website of the chosen bank or post office.
Those who are opting for offline mode have to visit the nearest post
offices or the chosen bank and fill in the PPF account application form
and submit the same along with the list of supporting documents to open
the account.
List of required documents to open a PPF Account
- PAN Card,
- Residential Address Proof,
- KYC Documents to verify the identity of the individual (Aadhaar card, Driver’s License, Voter ID, Electricity Bill, Water Bill)
- Nominee Declaration Form
- Passport size Photograph
Public Provident Fund Tenure
The tenure or duration of the PPF account is for 15 long years. After
completion of 15 years, on application by the subscriber, the account
can be extended for 1 or more in blocks of five years each.
Withdrawal of Public Provident Fund Account
An investor will have to adhere to several clauses if he/she wants to
withdraw funds from the PPF account and they are as follows:
Compulsory lock-in of 15 years will be imposed on the principal
amount invested in such plans.
If in case of an emergency, only partial withdrawal of the invested
amount is allowed. However, this can be extracted only after completing 5
years of the opening of the account.
An investor can withdraw up to 50% of the total balance in one go
each financial year succeeding in the 4th year.
One should note, that the funds invested in PPF account cannot be
liquified before completion of the maturity period.
The account holder who is seeking for withdrawal of his/her PPF
account will have to submit an application for withdrawal in Form C to
the concerned bank branch or the post office wherein they hold their
respective account.
Pre-mature Withdrawals from a PPF Account
The lock-in period for a public provident fund account is 15 years and
only upon reaching maturity, the account holder can close the account
and withdraw the proceedings. However, a pre-maturity facility for a PPF
account can be made at the beginning of the seventh financial year but
the maximum amount of pre-mature withdrawal should be equal to 50% of
the amount which has been deposited into the account at the end of the
fourth year preceding the year or at the end of the immediately
preceding year whichever is lower.
Defaulting on Payments and Revival of a PPF Account
If an account holder defaults on making a payment towards a PPF account
during any year and even the minimum amount is not invested, then the
account will be deactivated. To reactivate the account, the investor
should pay a penalty fee of Rs 50 for each of the inactive years and has
to make a contribution of Rs 500 for each of the inactive years.
If in case of death of the account holder, then the balance amount
accumulated in the account will be paid to the nominee or the legal heir
before the maturity period of 15 years as neither a nominee nor a legal
heir is eligible to continue the account of the deceased account
holder.
If in case, the balance amount of the account of the deceased investor
is greater than Rs 1,50,000, then the nominee or the legal heir has to
prove the legal identity to claim the said balance amount.
Premature Closure of a PPF Account
An account holder can opt for premature closure of his or her PPF
account subject to fulfillment of certain conditions laid out under the
Public Provident Fund (Amendment) Scheme of 2016 which has made changes
in Paragraph 9, for sub-rule 3(c) of the PPF Scheme of 1968. This
amendment was made to facilitate the premature closure of the PPF
Account.
The premature closure facility is permitted post completion of 5 years
of opening the account to meet the medical treatment expenses of either
self or of the family members or for meeting up the higher education of
the PPF account holder. But the closure of such accounts attracts an
interest rate penalty of 1%.
If in case, the account holder has changed his/her residency, then they
will have to produce Visa or passport. For higher education of self or a
dependent family member, one has to provide the fees bills or admission
confirmation letter to close the account.
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