Public Provident Fund (PPF) – Saving Scheme

Public Provident Fund (PPF) – Saving Scheme

The public provident fund is a central government fund and will come under the Ministry of Finance. The fund was first introduced in the year 1968 in order to encourage people to save for their future. The fund will be managed by the government and will have multiple benefits to the people who invest in this fund. The benefits will be good returns on the amount and Tax savings benefit that will keep changing from time to time.

As this scheme is managed and backed by the Central government, this is one of the safest investment options for people who wanted to take a very little risk and wanted reasonable returns. Over the past, the investors are provided with very good returns which attracted even more people to invest more in this.

Eligibility for opening PPF account

Any Resident Indian National can open the account by approaching any of the banks in which he or she may be holding an account. The account can be opened in their own name or also the parents can open the PPF account in the name of their children. The PPF account comes with a fixed tenure and the tenure can be extended by the resident Indian.

When it comes to Non-Resident Indian, they cannot open a PPF account. But if there is already an account that is open on their name, then the account will remain active without any issue as long as the tenure expires and the tenure, in this case, cannot be extended.

Why Should one Open an account?

There are multiple benefits of having a PPF account. Among them the few are

1. Public Provident fund is a central government-endorsed one and hence the safety of the money is to the maximum. The scenario of a government defaulting the payment is very rare and hence the capital will be in a safe place.
2. Investing in a Public Provident Fund account will have income tax benefits. The government will time to time notify the benefits to the investors of the Public Provident Fund account.
3. The Rate of Returns that are provided is much above the Interest rates provided by the Bank account and hence gather good returns on the amount.
4. The capital in the PPF is not subject to market volatility and hence a popular investment option.

Features

Some of the Features of Public Provident Fund are

1. The most important feature that has to be noted before understanding PPF is the account cannot be attached under any order or decree from any court in case of the individual becomes bankrupt. The only situation when the account can be attached is by the Income-tax officials and government officials.
2. The minimum amount of investment that is required for opening the account is 500 rupees per annum. And also there is a cap on the maximum amount the investors can invest in this account. The maximum amount that can be invested in this account is 1,50,000 rupees per year.
3. The Tenure of the Investment is 15 years which can be extended in case the individual is a Resident Indian. This means that the money lock-in period is 15 years and after the tenure is over the investors can withdraw the amount. They even have the option to increase the tenure of the investment. The investors can increase the tenure to 5 more years if required.
4. Investors can invest in the account in the form of a lump sum amount each year or they can even invest in the account in instalments. It is to be noted that the investors if they choose to pay in instalment have the only option to choose 12 instalments per year. And also the account has to be kept active throughout the tenure of the Investment.
5. As the Fund is endorsed by the government of India, it is one of the safest investment options. It is most suitable for investors who wanted to have very little risk and also earn good returns on the capital.
6. The amount that is invested in PPF is tax-free according to section 80c of the income tax act of India. And also the maximum amount that can be invested capped as mentioned above. Hence the individual can save tax to the maximum on the principal amount of 1,50,000 rupees per year. And also the returns that are earned on the investment are also tax-free. This means that the investors can save tax both on the principle and also on the interest earned.
7. The investment in PPF can be used as security for getting loans. But to avail of this facility, one can apply for a loan at any time starting from the 3rd year till the end of the 6th year from the date of opening of the account
8. The investors can choose multiple nominees in the nomination form. They also need to mention the ratio in which the amount has to be distributed between the nominees.

How to Open a Public Provident Fund

The process of opening a PPF account has very much been simplified over the years. Now the individuals can open the account both online and offline. And also almost all major banks of India have the option to open a PPF account. The individual check with the bank website in which they are holding an account.

The document that are required for opening an account are

1. Residential Address Proof
2. PAN Card
3. KYC Documents to verify the identity of the individual (Aadhaar card, Driver’s License, Voter ID, Electricity Bill, Water Bill)
4. Nominee Declaration Form
5. Passport size Photograph

If you wanted to open the account in offline method, then you can approach the bank or the nearest post office and fill the PPF account opening form that is available at them and submit with all the necessary documents that are mentioned.

How to withdraw from PPF Account

As mentioned the PPF account will have a tenure or also called as lock in period of 15 years.

But the government have a clause to allow investors to withdraw a certain amount in cases of emergency. The Investors can withdraw a certain percentage in case of emergency and this is also applicable only after the initial 5 years from the date of opening the account. The investors can withdraw to a maximum of 50% every financial year from the 4th year and the succeeding years.

he account holder who is seeking for withdrawal of his/her PPF account will have to submit an application for withdrawal in Form C to the concerned bank branch or the post office wherein they hold their respective account.

The lock-in period for a public provident fund account is 15 years and only upon reaching maturity, the account holder can close the account and withdraw the proceedings. However, a pre-maturity facility for a PPF account can be made at the beginning of the seventh financial year but the maximum amount of pre-mature withdrawal should be equal to 50% of the amount which has been deposited into the account at the end of the fourth year preceding the year or at the end of the immediately preceding year whichever is lower.

What is The installment is not paid or Defaulted

If in case during the tenure of the PPF account, the investor defaults one or more years installments, then the PPF account becomes inactive. But the account can be brought back to active state and for that to be done, the investor has to pay a penalty of 50 rupees for each financial year during which the account is inactive and also invest a minimum of 500 rupees for each financial year for which the payment is defaulted.

If the account holder dies before the completion of the tenure of the Individual, then the amount in whole will be paid to the nomine if at all mentioned in the account and if there is no nominee, then the amount will be given to the legal heir before the maturity of the account. The account cannot be continued by the nominee or legal heir.

If in case, the balance amount of the account of the deceased investor is greater than Rs 1,50,000, then the nominee or the legal heir has to prove the legal identity to claim the said balance amount.

Premature Closure of the Public Provident Fund

The investors has to abide by the rules of the government and has to stay invested for the tenure of 15 years lock in period. But there is also few clauses which will alow the investor to withdraw the amount prematurely and close the account before the completion of 15 years time. This premature closing is only applicable after the completion of initial 5 years tenure and also premature closing attracts a penalty of 1% on the total amount.

The reasons for which premature closure is allowed as

1. Medical expenditure for the self. For which proof has to be submitted for closing the account
2. For higher studies. the proof of admission letter and fees details has to be submitted to close the account.

Tax Benefits

Annual contributions made up to Rs 1,50,000 per year towards the public provident fund is qualified for tax deduction under Section 80C of the Income Tax Act of 1961. The Public Provident Fund (PPF) falls under the EEE (Exempt Exempt Exempt) category of Income Tax. This means, the principal amount, interest earned on the investment and the final maturity amount are completely exempt from the Income Tax and hence it offers triple exemption benefits. Usually, Wealth Tax is not applicable on a PPF account and its proceeds.  One thing, the investor has to keep in mind is that the account holder cannot close the PPF account before maturity. But it can be transferred from one point of destination to another as per the convenience of the individual. The only exemption under which a PPF account can be closed is on the death of the account holder. In such a case, a nominee can file for the closure of the account.