PPF Tax Benefits & Features you must Know About

By: Bank of Baroda
Wed Jul 3, 2019
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A popular investment and tax saving instrument for Indians since it was first introduced in 1968 by the Central Government, the Public Provident Fund is a great tool to boost small savings by every individual across India. One of the biggest reasons thousands open opt for PPF is the PPF tax benefits.

The following are the features of a PPF for your comprehensive understanding:

Tenure

The PPF is a long-term investment with a minimum tenure of 15 years. PPF holder can extend the tenure by a period of 5 years every time.

Rate of interest

The rate of interest is determined by the Ministry of Finance every quarter. The compound interest is paid out at the end of the financial year i.e. on March 31. The interest is determined based on the balance between the closing of the 5th day and last day of each month.

Limits on investment

PPF is appealing to every section of society with different income levels. The minimum deposit every financial year is Rs.500 while the maximum amount is Rs.1, 50, 000. You can deposit the amount in lumpsum or in instalments in a financial year.

Opening Balance

You need to have at least Rs.500 to begin with when you open the account. Maximum amount upto Rs.1,50,000 can be invested every year and is eligible for exemption under section 80C of IT Act.

Mode of deposit

There is limited restriction on how you can deposit money into your PPF account. You can transfer funds online, deposit cash, cheque or pay through a demand draft.

Frequency of deposit

The account holder needs to make a deposit at least once a year for 15 years.

Nomination

The account holder may nominate one or more people (maximum 4) who will receive the amount in the PPF in case of the account holder’s death. The amount that each nominee will receive can also be determined by the account holder during nomination.

Joint account

One individual can hold only one PPF account at any given point of time. No joint account is allowed.

Risk-free

The PPF is backed by the government and offers complete protection of investment regardless of market conditions.

Loan

You are eligible to take loan against your PPF provided it is between its 3rd-6th Financial year. The loan amount is capped at 25% of the balance in the 2nd year preceding the year in which you applied for the loan.

Eligibility

You need to be an Indian citizen residing in India. Members of HUF cannot open a PPF account. One eligible individual can hold only one PPF account. However, an individual can hold another PPF account on behalf of a minor.

Can one withdraw from their PPF before maturity?

A PPF account can be closed only when it completes 15 years. However, if the account holder needs to withdraw money from their PPF account due to a financial emergency, they can do so only from the 7th year onwards. These withdrawals can be made only once in a fiscal year.

What are the tax benefits offered with a Public Provident Fund? Is PPF maturity taxable?

A PPF is categorised as EEE which stands for Exempt-Exempt-Exempt. This means that the principal amount can be deducted under Section 80C of the Income Tax Act, 1961.

Furthermore, there is no PPF maturity tax i.e. the account holder does not have to pay tax on the interest accumulated on maturity of the PPF or the total amount post maturity.

A simple enough tax saving instrument with good rate of interest, you can start a PPF for yourself or your child with Bank of Baroda.

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