Understanding the PPF (Public Provident Fund) and its Benefits

What is PPF (Public Provident Fund): Introduction

Importance of a PPF Account

A PPF account is a good option for individuals looking to build a corpus for their future financial needs. Here are some key reasons why a PPF account is important:

1. Long-term Savings: In this savings scheme we have to invest for a minimum of 15 years. That’s why they encourage us to save for a long time. It also proves to be a good option for retirement.
2. Steady Returns: This scheme provides us with the best interest rate. The government keeps changing the interest rate every three months.
3. Tax Benefits: Contributions made to this account are eligible for tax deductions under Section 80C of the Income Tax Act. The interest earned and the maturity amount are also tax-free, making it a tax-efficient investment option.
4. Loan Facility: Account holders can avail of loans against their deposited balance from the third financial year up to the sixth financial year. This feature provides individuals with the flexibility to meet any unforeseen financial requirements.
5. Flexibility in Contributions: This account allows individuals to invest a minimum of ₹500 and a maximum of ₹1.5 lakh per financial year. The flexibility in investment amounts makes it accessible to individuals from various income groups.

Features of a PPF Account

A PPF account comes with several features that make it an attractive investment option:

• Lock-in Period: The initial lock-in period for a PPF account is 15 years. However, individuals have the option to extend the account in blocks of 5 years after the maturity period.
• Interest Rate: The interest rate on PPF accounts is determined by the government and is currently set at 7.1% per annum (as of April 2021). The interest is calculated on the minimum balance between the 5th and the last day of each month.
• Withdrawal Restrictions: Partial withdrawals from a PPF account are allowed from the 7th financial year onwards, subject to certain conditions. Complete withdrawal is only permitted after the maturity period.
• Transferability: Public Provident Fund accounts can be transferred from one authorized bank or post office to another, making it convenient for individuals who relocate.
• Nomination Facility: PPF accounts allow individuals to nominate a beneficiary who will receive the funds in the event of the account holder’s demise.

How to Open a PPF Account?

Opening a Public Provident Fund account is a simple process. You can open PPF account with any authorized banks or post offices easily. You can open account with online mode also.  Step-by-step guide are as follows:

1. Visit a authorised bank branch or post office that offers PPF account services.
2. Fill out the Public Provident Fund account opening form with the required details, including personal information and nominee details.
3. Submit the necessary documents, such as proof of identity such as Aadhar or Votor ID card etc, proof of address, and passport-sized photographs. Do not forget the PAN card because PAN card is mandatory in all finance schemes.
4. Deposit the minimum amount required to open the account, which is currently ₹500.
5. Collect the passbook and account documents provided by the bank or post office. You can access your account details by using Bank app or website also.

Tax Benefits

PPF account offers several tax benefits to account holders. Some of benefits are as follows:

• Contributions made to a Public Provident Fund account are eligible for tax deductions under Section 80C of the Income Tax Act, up to a maximum limit of ₹1.5 lakh per financial year. That’s why you can also save tax easily.
• The interest earned on the account is 100% exempt from income tax.
• The maturity amount received at the end of the 15-year period is also tax-free. After 15 years, Even if you continue investing for 5 years or 5 more years in the same sequence, you will not have to pay tax.

Procedure to Withdraw PPF Money

PPF accounts have certain rules and restrictions regarding withdrawals:

• Partial withdrawals are allowed from the 7th financial year, subject to certain conditions.
• The maximum amount that can be withdrawn in a financial year is capped at 50% of the balance at the end of the 4th year preceding the year of withdrawal.
• Complete withdrawal of the PPF funds is only permitted after the completion of the 15-year lock-in period.

FAQs:

1. How much will I get after 15 years in PPF?
If an individual invests Rs. 1,50,000 every year for 15 years at a 7.1% interest rate, his or her maturity money at the end of the year will be Rs. 40,68,209.
2. What PPF means?
What is a PPF account? The PPF account, also known as the Public Provident Fund program, is one of the most popular long-term saving-cumulative-investment options, owing to its mix of safety, returns, and tax benefits.
3. What is PPF eligibility?
PPF can be invested in by any Indian citizen. Unless the second account is in the name of a minor, each citizen can only have one PPF account. Public Provident Fund accounts cannot be opened by NRIs or HUFs. However, if they already have a PPF account in their name, it will stay active until its completion date.
4.  Are PPF returns tax free?
Yes it is tax free. In this scheme, the amount deposited, interest received and the entire amount received on withdrawal is also tax free.
5. Can PPF account be transferred?
Yes, a PPF (Public Provident Fund) account can be transferred from one authorized bank or post office to another.
6. Can PPF account be closed?
Yes, a Public Provident Fund account can be closed prematurely under certain conditions.
7.  Can PPF account be opened online?
Yes, we can open Public Provident Fund account online. Almost all banks and post offices provide us this facility.

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Conclusion

In conclusion, a PPF account is a valuable investment option for individuals looking to secure their financial future. With its long-term savings approach, tax benefits, and steady returns, a PPF account can help individuals build a substantial corpus over time.

Disclaimer: This blog is solely for educational purposes.