Public Provident Fund (PPF) offered by India Post is the most chosen savings scheme by the individuals. This post office scheme can be opted for regular deposits.
It is popular not only because of minimum investment but also for offering tax deduction under Section 80C of the Income Tax Act.
PPF comes with a maturity period of 15 years and the interest rates are revised and decoded by the government 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 7 facts about the PPF scheme one must know:
- Minimum investment to open: 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 limit of the deposit that could be made is Rs 1.5 lakh in a financial year. One can choose to deposit either in lumpsum or in flexible installments. Also, as per your convenience, you could vary the amount and the number of installments.
However, you must ensure not to fail to deposit installment in your account, it could lead to discontinue your account and 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 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.
- Withdrawals:One can withdraw the entire amount from the account only on maturity. Only in case of death pre-mature closure of a PPF account is permissible. 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% of the balance at the end of the 4th year, or 50% of the balance at the end of the immediately preceding year, whichever is lower.
- Tax benefits: PPF Deposits are a very popular means of claiming deduction under section 80C of the Income Tax Act, 1961.Furthermore, the interest the entire maturity amount is non-taxable.
- 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. However, inactive accounts or discontinued accounts are not eligible for a loan.
- Continuing PPF: After maturity also, one can continue the PPF Account i.e. 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.