It can be opened by both salaried and self-employed individuals, with just the minimum deposit of Rs 100. through any bank branch or a post office.
Run under the Ministry of Communications, Public Provident Fund (PPF) is a savings scheme offered by India Post. This post office scheme can be opted for regular deposits. This scheme is popular because it can be started with minimal investment amounts. PPF comes with a maturity period of 15 years and also offers tax deduction under Section 80C of the Income Tax Act.
The government decides the interest rates every quarter. From 1st July to 30th September 2019 (Q2 FY 2019-20), the applicable PPF interest rate has been fixed at 7.9 per cent. For January – March and April – June 2019, the interest rate was 8 per cent.
Here are some of the must-know facts about the PPF scheme:
# Minimum amount required to start: A minimum amount of Rs 100 is required to start a PPF account. It can be opened by both salaried and self-employed individuals, with just the minimum deposit. The PPF account can be opened at any bank branch or through a post office. Guardian or parents can also open a PPF account on behalf of a minor child.
# Maximum and Minimum deposit limit: The minimum deposit that needs to be made in a financial year is Rs 500. The maximum of the deposit that could be made is capped at Rs 1.5 lakh in a financial year. You can make the deposits either in one go or in flexible instalments. As per your convenience, you could vary the amount and the number of instalments, provided you do not exceed 12 instalments in one financial year. Note that your account could also be discontinued if you fail to deposit the minimum amount required, even though your interest would continue to accrue. The account can be activated again by paying the prescribed default fee along with subscription arrears.
# Interest calculation: The interest calculation in PPF account is different. The interest rate is calculated on the lowest balance between the 5th and the last day of the month. Hence, to maximise your earnings, you should make deposits between the 1st and the 5th of the month. The interest is compounded annually and is credited on March 31 each year.
# Premature withdrawal: Only on maturity, can you withdraw the entire amount from your account. However, partial withdrawals in times of financial crises are permitted subject to certain limits. From the 7th year onwards you could withdraw once a year, which can not exceed 50 per cent of the balance at the end of the 4th year, or 50 per cent of the balance at the end of the immediately preceding year, whichever is lower. Only in case of death pre-mature closure of a PPF account is permissible.
# Tax benefits: Deposits in a Public Provident Fund qualify for a deduction u/s 80C. Furthermore, including the interest the entire maturity amount is non-taxable. Along with the interest earned that is tax-free, PPF deposits are exempt from wealth tax too.
# A loan from your PPF: One can take a loan on one’s PPF deposit, subject to certain terms and conditions. Loans could be taken from the 3rd year onwards till the 6th year. Up to a maximum of 25 per cent of the balance at the end of the 2nd immediately preceding year would be allowed as a loan, which needs to be repaid within 24 months. Also, note that inactive accounts or discontinued accounts are not eligible for a loan.
# Continuing PPF: An individual has the option to extend their PPF account after the 15-year tenure. This can be done with or without a further subscription, for any period in a block of 5 years. The rest of the balance in the account continues to earn interest at the normal rate as admissible on PPF account till the account is closed. Also, during this time only one withdrawal is allowed per annum.