PPF

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The Public Provident Fund (PPF) is a long term saving scheme introduced by the government in 1968 to ensure tax return benefits and long-term retirement plan. Thus PPF can be used to reduce your tax amount as any amount deposited in PPF will automatically become tax-free. Besides the tax benefit, the PPF interest rate “compounds” annually and is fixed by the central government every year.

These accounts do not call for huge savings and are safe and easily accessible. There should be a minimum deposit of every year or otherwise, the account will become inactive. The minimum deposit varies from rupees 150 to 1.5 lakhs per annum.

Key Features of PPF

We all know the benefits of savings. Saving money not only helps in the making a person financially secure but also acts as a safety cushion in case of emergency. The PPF provides a long term saving option to an individual.

  1. Interest rate: -The interest rate is compounded annually and is announced by the central government. The current rate of interest is 7.8%
  2. The tenure of a PPF account is 15 years. The account is allowed to continue. The duration of scheme can be extended beyond maturity for a period of 5 years at every renewal
  3. An initial investment of rupees 100 is needed to open an account
  4. Annual deposit is important without which the account will be rendered invalid. The annual deposit ranges from Rupees 500 to rupees 1.5 lakhs per year
  5. Deposit mode: -deposit can either be made in cash, by cheque, Demand Draft, PO or through online bank transfer
  6. Withdrawals: -You can only withdraw a partial amount after 7 years.7 years are the minimum lock in time. The complete maturity can be made only at the time of maturity
  7. Tax advantages: -Not only the money that is deposited is tax-free but also the interest that is earned from such deposit is also tax free.
  8. Fund transfer: -The funds or account cannot be transferred between people but can be transferred between branches anywhere in India.
  9. Loan facility: -Loan can be applied against the fund held in PPF from 3 years to 6 years
  10. Loan account: – Joint account is not allowed

Benefits of Investing in a PPF Scheme

  • It acts as a good option for a long term investment scheme. The maturity period is 15 years and minimum lock-in period is 7 years. Moreover, the interest rate also gets annually compounded.
  • It is one of the most tax efficient, affordable and the most popular retirement scheme in India. Not is the interest rate tax-free but the withdrawals are also taxed deductible
  • Since this scheme is backed by the government, it is very safe and risks free.
  • The account is easily accessible anywhere in the country on any nationalized bank, public banks or post office and in certain selective private banks as well.

Eligibility to Open a PPF Account

  • Only an Indian Citizen can open a PPF account
  • Only one account can be opened per individual
  • A person should be more than 18 years
  • Guardians can open a PPF account on behalf of their minors
  • NRIs cannot open a PPF account. However, if a person opens an account before leaving the country, he or she can continue to use their account until it gets matured. However, they cannot extend the tenure of the account after completion of its maturity
  • A person cannot open an account on behalf of the Hindu undivided family

How to Activate a PPF Account

A PPF account can be opened both online as well as offline.

APPLY OFFLINE

For the offline process a person must follow the following guidelines:

  1. First, you need to visit any nationalized bank or post office
  2. Fill in the necessary forms and submit it along with the required documents
  3. An initial deposit must be made. The account can be opened by paying Rs 1000 and a minimum of Rs 100 must be deposited every year.

APPLY ONLINE

The online process of opening a PPF account requires the following steps:-

  1. Visit the official website of your bank.
  2. This process requires that you have an online account with the respective bank.Opening an online account also helps in a number of ways like you can transfer funds online, view online statement, online tax payment, and other value added services.

List of Banks Where PPF Account Can Be Opened;

  1. State Bank of India
  2. State Bank of Travancore
  3. State Bank of Hyderabad
  4. State Bank of Mysore
  5. State Bank of Bikaner and Jaipur
  6. State Bank of Patiala
  7. Allahabad Bank
  8. Bank of Baroda
  9. Bank of India
  10. Bank of Maharashtra
  11. Canara Bank
  12. Central Bank of India
  13. Corporation Bank
  14. Dena Bank
  15. IDBI Bank
  16. Indian Overseas Bank
  17. Oriental Bank of Commerce
  18. Punjab National Bank
  19. Union Bank of India
  20. United Bank of India
  21. Andhra Bank
  22. Vijaya Bank
  23. Punjab and Sind Bank
  24. UCO Bank
  25. ICICI BANK
  26. AXIS BANK

PPF Application Forms

Form A (To open an account)

A person needs to fill up this form when he/she wants to open an account. Here his/her name must be filled along with his/her address, PAN, and signature. The amount which has been deposited must also be mentioned. Guardians must fill in the name of the minors and their relationship with the applicant. Similarly, if the account is being opened by an agent then the name of the agent must be mentioned

Form B (To deposit)

Deposits may be in the form of investments, a penalty for reopening a deactivated account or repayment of a loan. Deposits should be made every year to ensure that the account remains activated. The minimum amount that should be deposited every year is Rs 500

Form C (withdrawals)

Withdrawals can be made only after 7 years from the date it has been opened and that took a certain amount and not the whole amount. In this form, the applicant must fill in his or her account number, amount to be withdrawn and a declaration that no amount has been withdrawn in that year.

Form D (Loan)

Loan can be applied against the amount in your PPF account. A person can apply for the loan only after 3 to 6 years on account activation. He/she must sign an undertaking that the same amount will be repaid within 3 years

Form E (Nominee)

A person can add one or more nominee for a single PF account. The name and address of the nominee along with their relation should be mentioned in the form. In the case of more than one nominee, the share of each nominee must be mentioned. A person can change his/her nominee by filling in a form whereby a person must mention when the nominee is canceled/replaced was named

Form F (Legal heir)

In the case of death, the account nominee or the legal heir can claim the amount. A person must fill in his/her name and must produce the death certificate of the account holder

Form G (For extension)

A person can extend the tenure of the account by 5 years upon maturity. In this form, the account number and the date of opening the account must be mentioned.

Form H (For account extension)

A PPF account attains full maturity after completing 15 years from the date of its opening. An individual can withdraw the complete amount from his or her PPF account after the account reaches maturity or can extend the tenure of his or her account by 5 years. For the extension of tenure of the PPF account, a person will have to fill this form.

 Factors Affecting PPF Account

Your PPF account is like a plant which requires proper nurturing and care and not doing so will render it inactive. Some of the factors affecting PPF account are: –

Account activation

Any individual be it salaried or self-employed can open a PPF account with a minimum initial deposit of Rs100.A PPF account can be opened in any branch of state bank of India or banks associated with it. Some private banks are also authorized to offer this service like Bank of Baroda, Central Bank of India and Bank of India. A PPF account can also be opened in any Post Office. Furthermore, a minor can also open a PPF account on behalf of their parents.

Minimum Deposit

A person should deposit a minimum of Rs500 in his/her PPF account every year. A person saves a maximum to up to 1 lakh in one fiscal year. However, if he or she fails to deposit the minimum amount then the account will become inactive. The deposit can be made at once or it can be made in 12 installments or in 2 installments a month.

Reactivating a deactivated account

According to the Ministry of Finance, if in case a person could not deposit the minimum amount of Rs 500 then his or her account will become inactive. In order to reactivate it, a person will have to pay a penalty fee of Rs 50. In case a person did not pay the minimum deposit for multiple years then a penalty will be charged for the all those years plus the sum total of the minimum deposit of these years. For example, if a person did not pay the minimum deposit for a year then his/her account will turn inactive. However, if he skipped his payment for 2 more years and want to reactive the account in the fourth year then he/she will have to pay the sum total of penalties of all the three years I.e.; Rs150 plus the sum total of the minimum deposit for three years I.e.; Rs1500.Thus to reactivate the account he/she will have to pay the minimum deposit of that year plus the penalties and the minimum deposits of three years I.e.; Rs1500+Rs150+Rs500=Rs 2150

Premature withdrawal

On special occasions like marriage (self, of children or sibling), home loan, medical expenses etc. a person can withdraw a partial amount from the corpus fund. A person can withdraw up to 50% and the entire amount can be withdrawn only at the time of maturity of the account. Further, a person can take out 50% of his total amount in the account, only when the account has completed 7 years. A person can also withdraw for the purpose of a car loan, gold loan or personal loan against his or her PPF account.

Income tax returns with PPF account

The amount deposited in PPF account is tax exempted. Not only this is the rate of interest on PPF account is also compounded annually and this interest amount also tax-free.

Extension of the PPF account

A PPF account attains maturity after completing 15 years from the date of its activation. However, a person may extend the tenure of the account by a period of 5 years. Doing so will ensure that the person continues to earn interest. However, once extended a person withdraw only 60% of the amount in his PFF account at the beginning of each extended period.

PPF CALCULATOR

Most of us have heard about PPF for the first time from our elders while talking in the context of tax savings or as a pension scheme. The PPF is a long term investment scheme. The interest on the amount in PPF account is not only compounded annually, but the amount in the account, as a whole is tax exempted. Under section 80C of the Indian Tax Law, PPF accounts are tax-free. Moreover, any amount withdrawn from the PPF account is also tax-free.

Such provisions ensure that a person gets a handsome tax free return upon maturity of their PPF account. The interest on the PPF account can be calculated using the PPF calculator. The PPF calculator is provided in the official website of all the authorized banks and post office. Besides calculating the interest earned, the PPF calculator can also be used on a number of other occasions like:-

  1. How much a person can borrow?
  2. The amount left after withdrawal
  3. How much a person will benefit from extending the tenure of the PPF account?

Difference Between PPF and Other Investment Options

In India, there are numerous pension system and investment options. The two most popular investment schemes with guaranteed returns in India are PPF, NSC, Mutual funds and Fixed Deposits.

PPF vs NSC

The National Saving Certificate can be held either by an individual or held jointly. The minimum amount that a person needs to invest every year is Rs 100 and there is no limit on the maximum amount that a person can invest. On the other hand, the minimum deposit in a PPF account is Rs 500 per year. The NSC rate of interest is 8.5% per annum and PPF account is same. The rate of interest on PPF account is decided by the ministry of finance, government of India.

Just like the PPF the NSC is tax-free except the interest earned in the last year.

PPF vs Mutual Funds  (MFs)

PPF is also better than other mutual fund investment. While the former is fixed investment scheme, the latter is investment into stocks. This means that investment in mutual fund may also lead to losses due to market changes. On the other hand, there is little risk involved in PPF investment as it is backed by the government.

PPF vs Life Insurance

A comparison can also be made between life insurance and PPF. The Public Provident Fund (PPF) is a fixed deposit savings scheme. While on one hand, a PPF account holder needs to deposit a minimum of Rs 500 per year, on the other hand, life insurance requires premium to be paid at regular intervals that act as protection or risk cover. Moreover, the PPF interest rate is 8.7 per year which gets compounded annually. The bond yield of life insurance is not fixed and varies from one account holder to another and ranges from 4% per annum to 6% per annum.

PPF vs Bank Deposits

Both the fixed deposit as well as recurring deposit are very safe investment schemes. The PPF interest rate is 8.7% per annum, and the rate of interest of a fixed deposit and a recurring deposit may vary from 7%per annum to 9% per annum depending on the bank and age of the account. Recurring deposit does not provide tax benefits, while on the other hand, Public Provident Fund and Fixed Deposit ensures tax benefits. Just like PF calculator, the FD calculator can be used to calculate the benefits on completion of the account tenure.

Closure of PPF

The lock in period of a PPF account is 15 years, after which it can be closed anytime. An individual can withdraw the whole amount upon closure or else choose to extend the tenure of the account by 5 years. If a person wants to close the account, then he or she will have to fill form C and provide and also produce the passbook of his or her account at time of closure.

If a person wants to extend the duration of the scheme, then he or she will have to fill form H.

Premature Closure of PPF Account

A person can close his or her account before maturity on the following grounds like: for medical treatment (of self, spouse, children or siblings). In such a case the applicant will have to produce proper documents before the authorities.

A person may also want to close his or her PPF account for the purpose of higher education (self, siblings, and children). In such a case the applicant will have to provide all the necessary documents about his or her admission. Moreover, the admission should be taken in a recognized university whether in India or outside and proper documents should be provided about the same.

Finally, a person can also opt for premature closure when the account holder expires. In such a case the legal heir or the nominee can seek for the permanent closure of the account and withdraw the fund.

To know more about EPF, Aadhaar Card, Indian Passports, Investment Options keep visiting Rupeenomics.com

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