Public Provident Fund (PPF) – Know PPF Details and Its Benefits

In 1968, the National Savings Institute introduced the PPF scheme. The Public Provident Fund (PPF) is one of the most popular and safest long-term tax savings scheme in India. The main objective of the PPF scheme is to help individuals make small savings and start investing with minimum of Rs. 500/- and provide return on the savings. The PPF scheme has a minimum lock-in period of 15 years and offers an attractive interest rate of 7.1% p.a., wherein no tax is required to be paid on the returns earned from the interest rate.

PPF Details

PPF Features

The following are some of the important features of the Public Provident Fund (PPF) scheme:

1. Interest Rate

The PPF offers a better alternative to traditional low-risk investments. Its interest rates are usually higher (7.1% p.a.) than interest from accounts in commercial banks.

2. Tax Benefits

Investments made in a PPF account are eligible for tax deductions under Section 80C of the Income Tax Act. The second tax benefit is the tax-free interest from a PPF Investment. Thirdly, its maturity proceeds are also tax-exempt.

3. Tenure

Individuals are required to hold on to their PPF accounts for at least 15 years. After crossing this threshold, they can choose to extend their holding period indefinitely by blocks of 5 more years.

4. Number of Accounts

Individuals can hold only one PPF account in their name. However, they can open a second account on behalf of a minor.

5. Eligibility

To have a PPF account, an individual needs to be an Indian citizen. Moreover, minors can hold a PPF account in their name, but their parents must manage the account on the minor’s behalf.

6. Investment Amount

Minimum investment amount is Rs. 500 and the maximum amount for tax benefits is Rs. 1.5 lakh in a financial year. You can choose to invest in instalments or in a lump sum. Making constant payments is important to keep the account active.

7. Mode of Deposit

Investors can deposit funds in their PPF account via demand draft, cash, cheque and online payment gateways.

8. Frequency of Deposit

Individuals investing their money in instalments can make up to 12 instalments in a year. Furthermore, they must make at least one deposit of at least Rs.500 every year throughout the 15-year tenure to keep a PPF account active. 

9. Loan

Investors with a PPF account can take a loan against their PPF account from the third or fifth year of holding their account. The loan amount they will be eligible for cannot be more than 25% of the investment made in the second financial year. Investors can also take a second loan from the sixth year after paying back the first loan amount.

10. Risks

Since the Government of India guarantees the returns of the Public Provident Fund scheme, the risks involved are negligible. Therefore, this is considered to be one of the safest investment options for capital protection and tax savings.

Also Read

EPF Vs PPF – Difference, Taxation and Where to Invest?

PPF Account for Minors – Eligibility, Taxation and How to Open?

Factors to Consider When Investing in PPF

Below are a few factors that you should take into consideration before you start investing in PPF:

• You cannot create a joint account for PPF
• Investors can avail tax exemption because PPF investments fall under the triple exempt (EEE) category. Under Section 80C, individuals will be able to avail tax deductions of up to Rs.1.5 lakh of investments
• People who invest in PPF will get guaranteed returns. However, the interest rates might vary. In the 2000s, the interest rate for returns was around 12% p.a., and currently, it is 7.1% p.a.
• Parents can open a PPF account on their kids’ behalf to accumulate a tax-free corpus for future expenses
• In order to maximise benefits, investors can invest a lump sum amount at the beginning of a financial year, that is, by the 5th of April

Benefits of Investing in PPF Online

1. Tax-free Savings Instrument

As stated previously, the PPF balance comes under the EEE category. With no wealth tax or taxes on the deposits or interest amount, account holders can acquire the complete amount at maturity.

2. Loan Against PPF

Even if you are ineligible for partial withdrawal, you can look for loans against your balance between the third and sixth years.

3. Minimal Yearly Investments

An individual can start investing in PPF online with just Rs.500. This allows people from economically challenged backgrounds to invest and earn hefty interest at maturity.

4. Not Linked to Markets

The investments in PPF are not impacted by market conditions. Accordingly, it is a suitable option for risk-averse individuals looking to save tax and earn returns at the same time.  

Interest Rate on PPF Investment

As per a circular dated September 30, 2021, India’s Finance Ministry declared that PPF accounts would continue to generate 7.1% interest, compounded annually. You can expect the interest to get deposited into your account by the end of March every year.

The calculation of interest is simple. Banks consider the lowest balance in your PPF account between the end of the fifth day and each month’s last day.

Calculate Your Interest Rate on PPF Investment

How to Open a PPF Account?

There are two ways you can open a PPF account – online and offline. The sections below discusses the steps of opening PPF account online and offline: 

1. Online Method 

The online process of opening a PPF account online involves the following steps:

• Step 1: Log in to the net banking portal.
• Step 2: Click on the option that allows you to open the PPF account.
• Step 3: Some banks will have the option of self-account or minor accounts. Choose as applicable.
• Step 4: Start creating the account by entering details like PAN, nominee details etc. Furthermore, you need to verify any detail that appears on the portal. 
• Step 5: After entering the details enter the amount that you want to invest in the PPF account.
• Step 6: You can also set up standing instructions with the bank so that the amount will be deposited in the PPF account each month automatically. 
• Step 7: Enter the OTP or password sent on the registered mobile number. 
• Step 8: Post completion of the above steps, the PPF account will be created. One can also note down the number displayed on the screen for future reference.
• Step 9: This step may not be applicable to all banks but some banks require the print-out of all the documents provided while creating the PPF account along with the KYC details. Individuals need to collate all these documents and submit them to the bank. 

2. Offline Method

• Step 1: Collect an application form from your nearest post office.
• Step 2: Submit the duly filled form with the required KYC documents and a passport-sized photograph.
• Step 3: You should deposit a minimum amount of Rs.500 in the PPF account, the maximum amount should not exceed Rs.1.5 lakh.
• Step 4: After submission of the required documents along with the application form and the amount, the applicant will be handed a PPF passbook. 

Also Read

Open PPF Account Online and Offline – Features, Documents Required and Benefits

PPF Withdrawal Rules – Rules, Process and Tax Implication

Documents Needed to Open a PPF Account

The following documents are required while opening a PPF account: 

• PPF account opening form (Form A)
• Nomination form
• Copy of Pan Card 
• Proof of address (as per bank’s KYC norms)
• Identity proof (as per bank’s KYC norms)
• Passport size photograph

Eligibility Criteria for Opening a PPF Account

• You must be an Indian citizen.
• You can have only one PPF account in your name. The only exception to this rule is if the second account belongs to a minor and you are opening it on his/her behalf.
• There is no PPF for NRIs; non-residents cannot take advantage of this investment option. However, if an individual has already invested in PPF before acquiring NRI status, he/she can earn interest until their tenure ends. Unlike Indian citizens, NRIs cannot apply for an extension after the initial 15 years pass.

Importance of Form C in PPF Scheme

Form C is used for PPF withdrawal under certain circumstances. These circumstances include a child’s education, wedding or medical emergencies. However, individuals can withdraw the money only after 6 years from the opening date of the account. Form C is important because it allows the individual to withdraw only the partial amount from the PPF funds instead of withdrawing the entire corpus. 

Taxability of Public Provident Fund (PPF)

PPF is a popular investment option as it offers guaranteed returns, attractive interest rates and tax benefits. It is one of the few investment options in India to have triple tax exemption status, also called EEE (exempt-exempt-exempt) status. In other words, you can get tax benefits at the time of investment, accrual and withdrawal.

All deposits made to a PPF account are eligible for income tax deduction under Section 80C of the Income Tax Act. The income tax deduction is limited to Rs. 1.5 lakh in a financial year. In the case of deposits made by minors, their parents can claim deductions under Section 80C subject to Rs. 1.5 lakh limit in a financial year.

Furthermore, the accumulated interest from PPF deposits is also exempt from tax at the time of withdrawal. PPF offers relatively high-interest rates among government-backed fixed-income products. This combination of tax benefits, security, and returns makes it an attractive investment option.

Finally, the amount after maturity is also completely tax-free at the time of withdrawal. Wealth tax is not applicable on PPF accounts and proceeds. Even the amount withdrawn prematurely from a PPF account is exempt from taxes.

Premature or Partial Withdrawal of PPF Balance

You will receive your entire interest earnings from PPF after 15 years of investment. An individual can close his/her PPF account prematurely only under special circumstances:

• A PPF account is eligible for partial withdrawal upon completion of 5 years of investment.
• Up to 50% of the account balance is available under such early withdrawals. Banks consider the closing balance in your fourth financial year or the balance at the end of the preceding year of withdrawal, whichever is lower.

How to Withdraw Money from PPF Account?

You can make partial withdrawals after a certain time of investing in a PPF account and full withdrawals after 15 years. If you wish to know the steps for withdrawing money from your PPF account, these are stated below:

• Step 1: Visit its branch and collect a PPF withdrawal form (Form C). Alternatively, you can visit the bank’s official website and click on the online withdrawal form.
• Step 2: Form C will be divided into three sections. The first section consists of the declaration section, the second part is for official use, and the last part is the receipt section.
• Step 3: Individuals need to enclose their PPF passbook alongside Form C. They must also add a revenue stamp and sign the form before submission. 

Also Read

Voluntary Provident Fund – Meaning, Benefits, Features, and Interest Rate

Employee Provident Fund (EPF) in India – Eligibility, Schemes, Calculation and Forms

How to Link PPF with Your Aadhaar Card?

In order to link your PPF with your Aadhaar, follow the steps below:

• Step 1: Log in to your net banking account.
• Step 2: Click on the “Aadhaar number registration” tab.
• Step 3: Enter your 12-digit Aadhar number; then click on the confirm option.
• Step 4: To link the PPF account number with your Aadhaar, choose the link option then click on “Finish”.

How to Transfer a PPF Account?

You can transfer your PPF account from a bank to a post office or vice versa. You can also initiate such a transfer within the same bank when you intend to change your deposit branch. 

In either case, here is the complete process for such a transfer:

• Step 1: Go to your home branch and fill up a transfer application form. Make sure you mention the full address of the branch where you intend to transfer your account.
• Step 2: Submit this application form. Your present home branch will start transfer proceedings and send relevant details to your new branch, along with specific documents. These include your PPF passbook, your signature specimen, a certified copy of your PPF account, your account opening application form and the nomination form.
• Step 3: Upon receipt of these documents, the branch you transferred to will intimate the same. You must submit a new account opening form at the branch.
• Step 4: Submit KYC documents to complete the transfer procedure.

How to Check PPF Account Balance Online?

Following the steps below to check your PPF account balance online:

• Step 1: Ensure that internet banking is activated for the linked bank account. 
• Step 2: Log in using your internet banking ID and password in order to check the details of the PPF account
• Step 3: After logging in, check the account status and balance
• Step 4: Individuals can also download the statement if they wish to do so

How to Reactivate an Inactive PPF Account?

In order to reactivate the inactive PPF accounts one needs to follow these steps:

1. Individuals first need to place a request with the bank or post office where they had opened the PPF account.
2. After placing the request, the individual has to deposit Rs.500 every year in the account which was inactive and an additional Rs.500 for the current financial year. 
3. One also needs to pay a Rs 50 penalty for every inactive year at the post office or bank where they have the PPF account. 
4. Finally, the bank or post office will review the application. If the lock-in period of 15 years is complete then the bank or post office cannot reactivate the individual’s PPF account. 

List of Banks Where You Can Open a PPF Account

These are some of the commercial banks where you can open a PPF account:

• Indian Bank
• State Bank of India 
• Bank of Baroda
• HDFC Bank
• ICICI Bank
• Axis Bank
• Indian Overseas Bank
• Punjab National Bank
• UCO Bank
• IDBI Bank
• Bank of India
• Union Bank of India
• Kotak Mahindra Bank 

Also Read

Tax Implications Of Provident Fund & How To Save Tax

Section 80C of Income Tax Act Deduction Limit FY 2022-23

When to Deposit Money in a PPF Account?

There are no specific due dates when you can deposit money in a PPF account. But if you wish to maximise your returns from your PPF investments, experts suggest investing the corpus between the 1st and 5th of April of a financial year. 

Individuals who do not have the means to make a lump sum payment can invest in instalments within the 5th of every month. The minimum amount one can deposit in a year is Rs.500. There are no maximum limits, but deposits above Rs.1.5 lakh are not eligible for tax benefits.

How to Convert Minor PPF Account to Major?

If the parents opened a PPF account when the child was a minor, they need to convert the account into an individual account when the child attains the age of 18. 

For conversion of a minor PPF account, individuals have to visit the bank or post office where the child has the PPF account and submit the following documents:

• Identity proof
• Address proof
• Copy of PAN card
• Cancelled cheque 

After the submission of all the above-mentioned documents, the bank will review them. Furthermore, the bank or post office will provide the individual with a newly issued passbook for opening the PPF account. 

How to Close a PPF Account?

Whether you are looking for an early withdrawal or closing your PPF account after maturity, here is the distinct procedure you need to follow:

• Step 1: Visit the bank or post office where you have the PPF account
• Step 2: Collect Form C and start to fill up two of its three sections
• Step 3: In section 1 of this form, declare your PPF account number, the amount you wish to withdraw and the tenure that has passed since your investment
• Step 4: Skip section 2, which is for office use only. In section 3, provide details of the bank account where you want the PPF proceeds to be deposited
• Step 5: After filling up all necessary information, submit your Form C at the bank or post office

Loan against PPF Facility

You can avail of a loan against your PPF balance. However, to do so, you must meet certain specific conditions. These are as follows:

• Availing of a loan against PPF is possible only between the third and sixth year of investment.
• Your loan amount cannot exceed 25% of the available account balance. For instance, if your current balance is Rs.2 lakh, your maximum loan against PPF principal would be Rs.50,000.
• Account holders can avail of a second loan before the sixth year of investment. Nevertheless, he/she must settle the existing debt before applying for a second loan.

Attachment of PPF Account for Debt Repayments

Individuals cannot attach any court order or decree to their PPF account to settle unpaid obligations or debts. However, Income Tax authorities are exempted from such restrictions, and they are allowed to access the debtor’s PPF account.

The IT department has the power to use the subscriber’s PPF balance to pay off any tax-related orders. 

Final Word

The popularity of PPF is apparent with each passing year. Its safety and long-term financial benefits make it an appealing option for individuals of all ages. You can create a retirement corpus or use the amount to aid your children’s education, marriage or any other take care of any other financial need. Moreover, you can also save tax by investing in it in instalments or in a lump sum. You can also partially withdraw the PPF amount to meet any urgent and sudden requirements. In case you do not meet the eligibility criteria for partial withdrawal of the PPF amount, you can get cash loans at attractive interest rates in a 100% paperless manner. Just download the Navi App and apply now!

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