Public Provident Fund (PPF) is one of the popular mode of tax savings and investments in India.
A long term investment scheme introduced by the Government of India in the year 1968. It was introduced to encourage savings and to create a retirement corpus among the general public.
PPF account can be opened at any authorized nationalized bank branch, authorized private bank branch or post office.
The account can be opened by any Individual who is a Resident Indian. Therefore, NRIs (Non-Resident Indians) and HUF (Hindu Undivided Family) are prohibited from opening PPF accounts.
One cannot open a PPF account jointly with another person. But nomination facility is available. The legal guardian of a minor can open an account in the name of the minor’s name.
The initial deposit to be made is ₹.100/-. But the annual deposit can vary from ₹.500/- up to ₹.150000/-. Annual deposits can be made in a maximum of 12 installments. Failure to make deposits in any year can render the account inoperative.
The total investments made in the minor’s account together with the investments made in the legal guardian’s account in aggregate should not exceed ₹.150000/-.
The tenure of the PPF account is 15 years. Further renewal for a period of 5 years each is allowed. Deposits may or may not be made during such period of extension.
Partial withdrawals of deposits are permitted from the 7th financial year onwards. Total withdrawal is permitted only on maturity.
However in the cases of death of the account holder, medical treatment of the account holder, spouse, dependent children or parents or higher studies of the account holder – total premature withdrawal is permitted.
In cases of total premature withdrawal for either medical treatment or higher education, the PPF account ought to be held for a minimum of 5 financial years and a penalty of 1% will also be deducted from the interest starting from the day of opening the account upto the day of total withdrawal.
Loan facility against the deposit is available from the 3rd financial year upto the 6th year. Interest on loan is charged at the rate of 2% above the deposit interest earning rate. Loan taken has to be repaid within 36 months.
Interest earned is credited at the end of the financial year. The current interest rate for the financial year 2018-19 is 7.6%p.a.
Interest earned on the deposits and the maturity proceeds are both exempt from tax. The deposits made during the year are eligible for deductions under section 80C of the Income Tax Act 1961.