Public Provident Fund (PPF)

The Public Provident Fund (PPF) Scheme  is a tax-free savings schme . Interest earned on deposits in these accounts is not taxable. Deposits made in Public Provident Fund accounts are exempt from tax under section 80 C of income tax .

This makes the PPF  one of the most tax efficient instruments in India.

This scheme was  launched to encourage savings among Indians . Since most of us would hate the idea of paying extra taxes , we would rather happily park our surplus funds for a longer term in PPF accounts.

PPF Accounts

People can deposit funds in PPF accounts for a fixed period of time to earn returns on their savings. The  interest rate for FY 15 – 16 was 8.7% . This rate has been further reduced to  8.1%  for  FY: 16-17

The minimum deposit requirements are very low and affordable in these accounts . These are tax-free , easily accessible, saf and simple to understand, making these a popular investment avenue for a large majority of individuals in India.

PPF accounts can be opened at any nationalised, authorised bank and authorised branches / post offices. PPF accounts can be opened at specific private banks as well. ICICI Bank and Axis Bank are the two banks among private sector banks that can open PPF accounts.

 

Interest Calculation

Interest is calculated for a financial year according to the rate announced for the said year i.e. unlike bank deposits the rates are not fixed for the entire tenure of the holding. The maximum amount that can be deposited in the account is also subject to change from time to time.

Benefits of  PPF Scheme:

  • Tax free interest
  • Amount invested in PPF can be deducted from taxable income under section 80 C (cap of 1,50,000)
  • Risk free
  • Ideal for long term savings and retirement planning
  • Immune to attachment from court orders or from claims from creditors

How to open PPF Account?

PPF account can be opened by post office, banks and online from banks’ websites.

Features of a PPF account in a nutshell:

 

PPF Account (FY16-17)
Interest rate 8.10% Interest earned is compounded yearly.
Lock In Period 15 Years account continuation is allowed beyond maturity for 5 years at every renewal, with or without making additional deposits
Annual Deposit amount 500-1,50,000/year
Deposit frequency Every year deposit has to be made else the account will become inactive
Withdrawal Premature withdrawal can be made every year from 7th Year.Complete withdrawal of funds can be made only at maturity.
Tax advantage No tax on interest .Amount deposited is tax deducible under section 80 C . Maximum cap 150000/year
Loan against PPF Loans can be availed against funds held in the PPF account from the 3rd Year to 6th year.
Renewal Can be continued/renewed for another 5 years at a time.
Initial Deposit INR 100 to open the account

We shall keep updating this post in future.

Which scheme(s)  do you invest in under section 80 C?

Share your comments below  on PPF accounts.

Suggested Reading:  http://www.oracleinvestor.com/tax/tax-savings-options-summary/

Cheers!

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