Public Provident Fund (PPF) is one of the preferred investments, offering a good rate of return, in addition to security of funds and tax benefits. Any individual can open a PPF account with a post office or a bank in his name or in the name of a minor.
Pursuant to a recent amendment, now a PPF account cannot be opened for a Hindu Undivided Family (HUF). Non-resident Indians are also not allowed to invest in the scheme. However, if you have started investing as a resident and, subsequently, become a non-resident, you will be allowed to continue with the account until its maturity.
Deposit and maturity
The minimum amount that can be deposited is R500 and the maximum is R1,00,000 a year. Earlier the upper limit was R70,000. A PPF account matures after a period of 15 years, after which the entire amount, along with interest, can be withdrawn. You may also opt for withdrawals before maturity, subject to certain limits. You can withdraw your accumulations once in a year from the seventh year. The applicable ceiling on such premature withdrawal is the lower of 50% of the balance at the end of the fourth year immediately preceding the year of withdrawal or 50% of the balance of the immediate preceding year.
In case of death of the beneficiary of the account, premature withdrawal is permitted, irrespective of the aforementioned limits and conditions. On the expiry of 15 years, the account holders can also apply for extension of duration for a further five years. In case an account holder opts for extension of PPF account, he shall also be eligible for partial withdrawal, subject to the certain conditions. Loan facility is available in a PPF account and 25% of the balance standing in the account can be withdrawn, subject to certain conditions. For 2013-14 starting April 1, PPF will earn an interest of 8.7% per annum.
Tax benefits
You can claim a deduction for investment in a PPF account under Section 80C of the Income-Tax Act, 1961 (IT Act). The entire amount of investment is eligible for deduction, subject to a maximum of R100,000 under the IT Act. Interest earned on a PPF account is tax exempt under Section 10(11) of the IT Act. The amount of interest earned and received on withdrawal at any time is not liable to be taxed. Amount received on maturity is not liable to tax and the investment in a PPF account does not qualify as an asset under wealth tax provisions and, thus, also allows savings to be made on wealth tax.
PPF is a good investment scheme considering the return on investment, tax benefits and security of investment. One can always think of investing in the name of children and facilitating them in their future.
The author is a director with KPMG. The views expressed are personal.
