PPF PUBLIC PROVIDENT FUND ACCOUNT | Is it a Good Idea to Invest in PPF Account

Is it a Good Idea to Invest in PPF
( Public Provident Fund ) Account 

PPF ACCOUNT RULES AND PROCEDURE

A gift from the Government of India i.e., PPF (Public Provident Fund) account is considered among one of the most popular and trustworthy savings and investment methods in India. If you are at the level to carry a Credit Card, it is your responsibility or financial knowledge that leads you to own PPF as it is considered as the most secure tax-saving scheme. It is a long-term instrument that provides a high rate of interest with tax exemptions. 

Check Latest PPF Interest Rates Here

The National Savings Institute of the Ministry of Finance brought this investment method into action with an aim to make more and more people initiate savings that will also eventually benefit their tax payments. ITS MAIN PURPOSE IS TO ACCUMULATE FUNDS FOR YOUR RETIREMENT FROM PROFESSIONAL SERVICES.

Table of Contents:

• What is PPF Account?
• Eligibility criteria for PPF Account:-
• Why  choose a PPF Account?
• How to apply for a PPF Account?
• Current Interest rates of PPF:-
• Withdrawal Rules of the account:-
• Withdrawal Procedure of a PPF Account:-
• Maturity of a PPF Account:-
• Extension of PPF Account:-
• Premature  closure of PPF account:-
• Tax applicability on Income:-
• Tax rebate:-
• Lock-in Period of the PPF:-
• Comparison with FD:-
• Availability of Loan on PPF Account:-
• Settlement of PPF Account in case of death of account holder:-
• Second PPF Account Opening:-
• Final Verdict:-

 

What is PPF ACCOUNT?

Under PPF scheme a PPF Account means an account opened in a bank that can be easily initiated by anybody who can deposit a minimum of Rs. 500 per year in the account ( you may place standing instructions to deduct money from the savings account periodically). The same amount is required to open a PPF account and to sustain it, the account should have consistently deposited at least Rs. 500 per year. 

The maximum amount that can be deposited per year in a single account is Rs. 1.5 lakh under the PPF scheme. The maturity of the PPF account is 15 years, which means once the account opened, funds deposited in the account cannot be withdrawn before 15 years of opening the account

Eligibility criteria for PPF Account:-

The eligibility criteria for PPF account comes under the following categories-

·        Nationality:

The nationality of the person willing to open a PPF account should be strictly Indian. No other nationality will be accepted or be eligible to apply for opening a PPF account in any circumstances and at any place throughout India.

 

·        Age limit:

There is no age limit for applying for a PPF account. An account can be opened for a minor as well as an adult or senior citizen too.

 

·        Yearly Contribution:

The yearly contribution required to be balanced in a PPF account is as minimum as Rs. 500 and as maximum as Rs. 1.5 lakh. 

( If at least Rs 500 is not deposited in any financial year then a penalty of  Rs. 50 per year will be charged and debited from your account whenever you will be making your next deposit in PPF along with Min Rs. 500 for each year’s minimum deposit.). 

Suppose that you have not deposited any amount for three years, then in the fourth year, you will have to deposit Rs. 2000 (Rs. 500 due for three years, and Rs, 500 for the current year) + Rs. 150, (Rs. 50 for each year's penalty).

The above categories are actively considered under the eligibility criteria for opening a PPF account. Other than this, the person wishing to open a PPF account should mandatorily fulfill KYC norms of the RBI, which means having an Officially Valid Document (OVD) for Photo ID and address proof.

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Why choose a PPF Account?

Choosing a PPF account will surely be the best decision of your life as you will get a lot of comforts and flexibility in the same. The returns earned from a PPF account are approx. 7 – 8 % (which are revised from quarter to quarter by RBI ) which when compared to the returns earned from any other investment seems higher ( for guaranteed return plans like Fixed Deposit or post office deposits or even tax-saving FDs). 

Also, the amount invested in PPF account is exempted from tax under section 80C of the income tax act. (Further details in tax rebate section). Also, the person opening a PPF account will be able to save some money and get great returns and benefits from the same. This is surely not at all a bad idea for any common person in India.

 

How to apply for a PPF Account?

The following are the steps that will surely guide you in applying for a PPF account and will help you secure some amount of your income for your better future-

·        The first thing that you need to do is to visit the SBI portal and select the ‘New PPF Accounts' option on the same. You may have to sign up or log in for the same.

·        After clicking on the option, you will have to enter the PAN details and account number of your current account through which you want to transfer the money to your PPF account.

·        After entering all your details, you will be taken to the verification process, ( visiting the bank branch ), and provide KYC along with the filled application form, after which it is decided that all the information you have entered is right or wrong. Then the PPF account is created and you will have to make an initial deposit of a minimum of Rs. 500 and maximum Rs. 1.5 lakh.

·        You will also have to add the details of the person whom you choose as your nominee for future convenience. PPF is one of the few instruments which allows you for more than one nomination. But the account can not be of Joint Nature.

 

You can apply for a PPF account in any of the PSU banks. ( However, the step-by-step process may be somewhat different as per the banks and branches ). The PPF account can also be monitored through the internet banking of the bank which provides view-only rights for the account. However, there are no restrictions for crediting the account through online mode.

The above steps will help you effectively open a PPF account and start saving your money on the go.

 

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Current Interest rates of PPF:-

Currently, i.e. as of 14/10/2023 the annual interest rate of PPF is 7.1%. This interest suits the common people as they get a great amount of non-taxable amount in their account per year which they can conveniently use for their important needs and requirements. This Interest changes according to the investment rates and that's why it fluctuates almost regularly.

The previous interest rate was approximately 7.9-8%. A gradual decrease in the interest rate has surely caused some problems or the other, but people are at least satisfied with the amount they are saving for their living and for their future needs, may they be luxuries or any necessities.

Withdrawal Rules of the account:-

There are 2 important and crucial withdrawal rules for a PPF account. They can be listed as follows-

·        Partial Withdrawal Rule:

The partial withdrawal rule states that the account holder can withdraw 50% of the money deposited till the fourth financial year completion, at the completion of the 5 full financial year tenure of the PPF account from the year in which the account was opened. The account holder will have to fill the 'Partial Withdrawal Form' available online as well as offline and then apply for an extension of the account.

 

For example :

 

 PPF Account opened in the year  May 2015.

 

Amount Deposited in FY 2015-16 - 100000

Amount Deposited in FY 2016-17 – 100000

Amount Deposited in FY 2017-18 - 100000

Amount Deposited in FY 2018-19 - 100000

Amount Deposited in FY 2019-20 – 100000

Amount Deposited in FY 2020-21 - 100000

 

 

For the above 5 years, you deposited 5 lacs rupees.

Now as said, 5 full financial years have to be completed. Hence FY 2015-16 will not be counted.  after the fifth year i.e., after FY 2020-21, you can withdraw the 50% amount of  (1st-year deposit + Second year Deposit + Third year Deposit + fourth year deposit)

= 50% of ( 100000 + 100000 + 100000+ 100000 )

= 50% of ( 400000 )

= 200000/-

 

It means you can withdraw Rs 200000/- from your PPF Account as partial withdrawal after completion of 5 full financial years of your PPF Account.

 

        Complete Withdrawal Rule:

The person can also withdraw their money completely from the PPF account and close it forever after its maturity ( 15 years completion ) is attained. In this, the complete money will be withdrawn and transferred to your saving bank account.

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Withdrawal Procedure of a PPF Account:-

The steps to be followed to withdraw money from a PPF account can be stated as below-

        First, apply for either partial or complete withdrawal by visiting the official site of SBI ( or your bank or post office wherever you have a ppf account ) and clicking on the PPF Withdrawal option. This withdrawal can be made partially or completely.

·        You can apply for withdrawal through the offline medium too. You will have to fill up Form C with all the bank account details and the amount that you want to withdraw and submit this form to the bank.

Through the above steps, one can easily withdraw their PPF money through offline or online mediums.

 Maturity of a PPF Account:-

The great amount of flexibility in the maturity of a PPF account has enabled a lot of people to trust and invest in the same. The regular tenure of a PPF account is specifically 15 years, it is also called the maturity period, which can always be extended for a block of 5 years in the future.

For example :

 

Suppose your PPF Account completes its 15 years in 2020.

Then you have the option

1.      to close the PPF Account and take the lump sum amount ( You can then invest in Mutual funds or other instruments without a lock-in period, wherever you wish ).

2.      to extend the PPF Account for the next 5 years. ( Your Money shall again locked for the next 5 years. you shall have the option to choose whether you just wish to lock the current amount of money or wish to continue the deposit of a minimum of Rs. 500 per year ( with a cap of max deposit of Rs. 150000 per year ))

 

That is why it can be said that people are able to save their valuable and hard-worked money in very small amounts for the tenure of 15 years and are also able to remove it in case of any emergency before meeting the maturity date. They are also able to extend their maturity date if they don’t wish to close their PPF account and continue to save their money for a longer period of time.

Extension of PPF Account:-

As mentioned above, the extension of a PPF account can be made after every 5 succeeding years. This will help the person to continue their savings as long as they need it the most. If the person wants to remove their money after extending their tenure, then they can easily do so without paying much penalties for the same.

Saving money and getting tax-free interests on the same has now become much easier with PPF accounts. Now even the people who earn very little can also save some part of their money so that they can consider it in the future and face their problems with much courage and finance than the normal situations.

Premature closure of PPF account:-

Check Premature CHECK PREMATURE PPF CLOSURE CIRCULAR HERE

Premature closure is allowed after 5 full financial years completion from the opening of account subject to the following conditions.  ( As per the information given on Indiapost official website )

“(i) In case of life-threatening disease of the account holder, spouse or dependent children.

(ii) In the case of higher education of account holders or dependent children.

(iii) ​In case of change of resident status of the account holder.”

However, 1% interest will be deducted from the date of account opening.

Tax applicability on Income:-

The tax applicability on the income of the person is specific but the amount that the person receives from a PPF account as interest is completely tax-free. This helps the person collect a considerable amount of money for themselves without worrying about the tax that they will have to pay for the same.

The tax applicability only on the income will not result to be too much as compared to the normal income applicability as in this case, your account will only contain the left-over income which will surely not be a lot. This will definitely benefit you to a great extent.

Tax rebate:-

There are a lot of tax rebate benefits  ( UNDER SECTION 80 C ) available for the person holding a PPF account. These benefits are not at all short-lived and can be availed anytime by the person throughout their account tenure. 

The main purpose of the tax rebate of PPF is to provide some relaxation regarding taxes to the people who are in a tough state to pay taxes. PPF accounts have feature of EEE for tax benefits i.e. Entry, Earnings and Exit , all are tax free. The amount of investment in PPF is tax exempted, the interest earned in it is tax exempted and the amount you receive when you withdraw is tax exempted.

Lock-in Period of the PPF:-

The initial lock-in period according to the structure and rules of the PPF is 15 years so, it must be treated as a long-term investment. This period is very much flexible in nature and the person does not have to wait for the maturity of the same if he/she needs their money immediately. 

This flexibility of the PPF enables people to trust it and save their money in the same so that it can be removed and used at the time of urgency or the person’s immediate requirement Also, after the completion of the tenure, people can extend the lock-in period of the PPF in sets of five succeeding years.

 The money can also easily be withdrawn immediately after the extension of the tenure. This has resulted to be very beneficial for the people as they can decide to remove the money before or after the maturity of the PPF or can even extend the tenure as per their wish.

Comparison with FD:-

There are some minor and major differences between FD and PPF and they can be listed in some detail as follows-

FD (Fixed Deposit)	PPF (Public Provident Fund)
1.  In this, the person having an account needs not deposit the money again and again.	1. This is a recurring account and the person needs to add money to this every year.
2. The current rate of interest of FD is 5-7%.	2. The current rate of interest of PPF is 7.1%.
3. The FD account cannot be opened for minorities as there is an age limit for opening it.	3. Even minorities can open a PPF account very easily and conveniently.
4 Tenure of FD could be from 7 days to 10 years	4 Tenure is fixed at 15 years
5 FD can be closed at any instant	5 PPF Account cant be closed at any instant
6 FD may be dead if the concerned bank is bankrupt	6 Money is not kept with any bank, Banks deposit your money to Government. Hence, No risk of Bankruptcy

 

Availability of Loan on PPF Account:-

People can surely apply for a loan on the PPF account ( avoid personal loans from markets ) that they hold but there is a rule for the time of availability of this loan. 

The person willing to take a loan on their PPF account should make sure that they have completed 1 full financial year tenure of the account. The meaning of this is that the person can take a loan ( @ 1 % above the PPF Account Interest Rate ) on his/her PPF account after completing 1 complete financial year but not after completing 5 full financial years of opening it.

 This rule is restricted to every PPF account holder for safety reasons and for the ease of the account holder. As far as money is concerned, you can take 25% of the amount at the end of the preceding financial year.

Settlement of PPF Account in case of death of account holder:-

In case of the death of the PPF account holder, the nominee will solely be his/her heir. The nominee will be responsible so that the legal heir of the deceased person will get all the clearing amount of the PPF account. 

The death of the person may lead to the early closing of the PPF account and the heir will not be able to continue it or add any sum of money to it. The total amount of money present in the account during the death of the account holder will be given to the heir via nominee even before the maturity date of the account is reached. 

But, if the heir wishes to deposit some money in it and continue it till the attainment of the maturity date, then that will not be allowed as that does not fit in the PPF account terms and conditions.

Second PPF Account Opening:-

The rules and regulations of the investment boards do not allow a single person to open the second PPF account if the first is ongoing or has not yet matured. This rule is made for the safety of the person and the money invested by him/her. 

This rule is very important and crucial from the point of view of the growing frauds taking place in the world. If anyone wishes to open a second PPF account then that will surely not be considered legal.

 Either the account will be closed by the bank, or the person holding these two accounts will not get the interest amount from any of them, nor the tax benefit. This strict rule has surely brought up a change in the investment sector of India to a great extent. However, one can transfer his PPF account from one bank to another.

Final Verdict:-

Opening a PPF account will be the most accurate and perfect decision of your life and you will surely never tend to regret it in the future. It is always advisable to open a PPF account at a young age so that your 15 years lockin period gets complete at the time when you might need your funds. Plus, you will initiate your savings habit with the help of a PPF account and this is not at all a bad thing.

 Every middle-class person should definitely look forward to opening a PPF account to make the most out of their income in the form of considerable and safe savings. Also, if your invest money in PPF Account the amount deposited shall be deducted from taxable income under section 80 C also, the maturity amount you receive after 15 years shall also be tax-free.

It is your tool to get retired RICH.