Public Provident Fund Interest Rates, Withdrawal And Tax Benefits

What is PPF Scheme?

The public provident fund is a long-term investment scheme. It is an excellent option to earn high returns on your savings. It is backed by the government, making it a safe investment opportunity. 

Any individual who is a resident can open a PPF account. The person can be self-employed, working in a private sector organisation, or a pensioner. Non-residents cannot open a PPF account.

You can open a PPF account with any bank or post office. Many banks offer the option to open a PPF account online. However, you must submit the online generated application at the post office or bank branch within 30 days. This shall be accompanied by your KYC documents and two latest passport-size photographs.

What makes PPF a great form of investment is that it keeps your savings secure. The interest earned is stable and free of any market fluctuations. Let us understand what the public provident fund is in detail.

Features of a PPF account

• The minimum amount required to be deposited every year is Rs. 500. The maximum amount of deposit extends up to Rs. 1,50,000 per year. 
• You can make a lump sum deposit. The other option is to deposit the amount in up to 12 instalments every year.
• The current interest rate on a PPF account is 7.1%.
• You can hold only one PPF account across the nation. This can either be at a bank or a post office.
• There is a 15 year lock-in period for a PPF account.
• You can take a loan against your PPF account 3 years after opening the account.

Interest rates on PPF

The PPF interest rate is determined by the government every quarter. The current interest rate for a PPF account is 7.1% per annum, compounded annually.

The interest is calculated every month between the 5th and the end of the month. This is done based on the minimum balance in your account. So making any deposit into your account on or before the 5th of a month will fetch you maximum returns.

The interest rate, as we stated before, is fixed for a period. Market ups and downs do not affect it. This makes the investment safe and stable. Moreover, there are many online PPF calculators available. These enable you to plan how to earn the highest returns. The PPF calculator considers the current interest rates and gives you an idea of how much you should invest to receive the most benefits. 

Withdrawal policy in PPF

Maturity

The PPF account has a lock-in period of 15 years on the deposits. You can extend the 15 year maturity period in segments of 5 years. The application for the same must be submitted one year before the year of maturity.  

You may also opt for premature closing of your account after completing 5 years. This can only be done under certain circumstances. Some of such cases are:

• The account holder, or the child or spouse of the account holder, is suffering from a critical illness and needs funds for treatment. 
• The account holder needs the funds to complete higher education.
• The residential status of the account holder has changed and now will be considered a non-resident. However, in this case, the account holder can continue operating the account till the 15-year maturity date.

Premature withdrawal

Premature withdrawal is only allowed after the completion of 6 financial years. However, there is a withdrawal limit of 50% of the account balance at the end of the fourth preceding financial year. In case you have taken a loan against your PPF account, that amount will be deducted before you make a withdrawal. 

Tax benefits Of PPF Account

The public provident fund enjoys the benefit of being an EEE (Exempt-Exempt-Exempt) scheme. This implies that the principal deposit amount and the interest earned are exempt from tax. 

While you file your income tax return, you can claim this exemption under section 80C. The upper limit for such exemption is Rs. 1,50,000 per financial year. 

Since this is a tax-free scheme, it helps in earning returns as well as managing your tax liability.

Why PPF?

The Public Provident Fund scheme comes with a lot of benefits. For starters, it is a flexible investment opportunity. You can start a minimal amount of just Rs. 500. You can also plan how to make the deposits, as you are allowed 12 instalments per year. 

Apart from this, it is a government-backed scheme. This keeps your money safe from fraud and promises a return on maturity. The interest rate is high and is compounded annually. This increases your wealth manifold over the years. Moreover, all these returns are free from tax. All this makes PPF a great investment opportunity that you must make the most of.