Public Provident Fund (PPF) is one of the best tax-exempted long-term saving schemes available today. If you want more information about PPF and how to open a PPF account, you’ve come to the right place. Using PPF account are fully exempt from wealth tax payment
In this article we will talk about PPF and its salient features. In addition, we’ll look at the various benefits of investing in PPF, as well as how to open a PPF account.
The Ministry of Finance, Government of India, introduced the PPF savings scheme in the year 1968. The primary goal of the scheme is to encourage and mobilize small savings with an investment option that offers income tax benefits in addition to reasonable interest rates. It is a hugely popular scheme as it offers safety (being fully backed by the central government) and attractive interest rates. In addition, it allows individuals to avail a loan against their PPF balance. If you are wondering even PF withdrawal form then must check out this blog which will allows you to downbload as well as complete details.
Another reason for its popularity is that the minimum deposit requirement is low and affordable. In order to open an account, the minimum deposit required is only INR 100/-. The minimum annual deposit requirement is only INR 500/-. The maximum amount that you can deposit in one financial year is INR 1,50,000/-. You can deposit amounts for a period of 15 years, which can be extended in a block period of 5 years. The Finance Ministry has kept the PPF interest rate at 8% for the quarter ending March 2017.
General PPF Rules
- You can make deposits through lump-sum amounts or through twelve different installments.
- Nomination facility is available. You can change the nominee at any time during the tenure of the PPF account.
- The PPF account is transferable from one post office to another post office.
- The maturity period of PPF account is 15 years. However, you can extend it within 1 year of maturity for next 5 years, and so on.
- You can maintain the maturity value in your account without further deposits and extensions.
- You cannot close the PPF account before maturity (15 years).
- A minimum deposit of INR 500/- is required every financial year, else the account will be deactivated.
- You can withdraw a partial amount once a year from the 7th year onwards.
- You can avail loans between the 3rd and 6th financial year.
PPF Interest Rate
Earlier, revisions to the PPF interest rates occurred once every financial year. From 2016 onwards, however, the rate is being revised on a quarterly basis. For the period between January 2017 and March 2017, the rate was 8%. You can contact your bank or post office to confirm the most current quarterly rate.
PPF interest is calculated on a monthly basis on the lowest balance in your account between 5th and 31st of the month. So, if you deposit an amount after 5th of the month, it will accrue interest starting on 5th of the next month. It is therefore advisable to deposit all additional amounts before 5th of every month. The interest amount is credited to your account on 31st March of every year. Any amount deposited in excess of the maximum limit (INR 1,50,000/-) does not accrue any interest.
PPF Account Calculation
Because the government is now revising PPF interest rates every quarter, calculating your annual PPF interest can be a bit tedious. Therefore, you may at times find a difference between your own calculation and the amount in your PPF account.
There are many tools and calculators available online to calculate PPF interest. However, to arrive at an exact figure, you will need a calculator that allows you to amend the rates for each month/quarter. Also, remember that interest is calculated on a monthly basis, but only credited at the end of the year.
If you are unable to find a calculator online, then use the following formula to calculate your interest for any given month.
- Interest Earned per Month = Account Balance x (1/12) x (Interest Rate/100)
Note: Account Balance is the lowest balance in your account between 5th and 31st of the month. Interest rate is the PPF rate for that quarter.
Income Tax Benefits of PPF Account
The entire maturity amount, including the interest, is exempted from tax. The interest earned is also free of wealth tax. Plus, deposits made to the PPF account are eligible for deduction under section 80C of the Income Tax Act.
Public Provident Fund Account Opening Procedure
Any resident Indian individual and individual on behalf of a minor can open a PPF account. You can open only one PPF account in your name. This saving scheme does not permit joint accounts. You can, however, open an account for your minor child and act as a guardian. You are eligible to open a PPF account even if you currently have an EPF account. Here is a list of entities at which you can open a PPF account.
- SBI branch or SBI subsidiary’s branch
- Any nationalized bank’s branch
- Through branches of select private authorized banks
- Post office
Obtain a PPF form from any of the above and fill it with the necessary details, including nomination. Enclose your photograph and other documents as required by the bank or post office. You will receive a PPF passbook same like as EPF passbook when you open an account.
Documents Required for PPF Account Opening
- Form A (PPF account opening form) duly filled in and signed. You can download and print Form A from your bank’s portal, or get it personally from your nearest branch.
- Nomination form.
- Passport-sized coloured photograph.
- Copy of PAN card or form 60 and 61.
- Attested copy of proof of identity.
- Attested copy of proof of residence.
- The proof of identity and residence should match with your bank’s KYC details – not applicable if opening PPF account through Post Office.
If you open your PPF account in a bank, you can manage your account online. Most government and private banks like SBI and ICICI Bank provide this facility. If you have a savings account with these banks, you can link it to your PPF account. Thus, you can easily deposit money in your PPF account from your savings account.
A PPF account is a great investment tool which also helps save tax. Any individual can build a good amount as their retirement saving. It just needs regular investment in the public provident fund account. The scheme is very friendly as it also offers 100% tax exemption on the interest.
Visit our website often to stay updated about the PPF scheme, its procedures, and other pertinent information.