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Public Provident Fund

Public Provident Fund (PPF) scheme is a popular long term investment option backed by Government of India which offers safety with attractive interest rate and returns that are fully exempted from Tax .

What is Public Provident Fund?

The Public Provident Fund (PPF) Scheme, 1968 is a tax-free savings avenue that was introduced by the Ministry of Finance (MoF) in India in the year 1968. Interest earned on deposits in the PPF account are not taxable. Deposits made towards PPF accounts can be claimed as tax deductions. This makes the PPF Scheme one of the most tax efficient instruments in India. It was launched to encourage savings among Indians in general, especially to encourage them to create a retirement corpus.

Why Should I Invest in PPF?

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Attractive Long-Term Investments

With a deposit period of 15 years and a lock-in period of 7 years, these accounts serve long-term investment goals. With interest rates compounded annually, effective returns tend to be more attractive vis-a-vis bank FDs

Useful for Retirement Planning

Long-tenures, compounded, tax-free returns and capital protection make this an ideal option for building a retirement corpus.

Tax-Free Returns

Tax-free interest and withdrawals and tax-deductible investments.

Low-Risk

Being government-backed, there is low risk of default.

Tax Advantages of Investing in the PPF Scheme:

Tax benefits available on these accounts make these investment options very attractive, especially for those using this scheme to build a retirement corpus.

  • PPF deposits fall under the EEE (Exempt, Exempt, Exempt) tax category.
  • Deposits made under this scheme can be claimed as deductions under section 80C.
  • Interest earned on these deposits are not taxable.
  • Amounts withdrawn from the account are exempt from wealth tax.
  • Amounts deposited in a spouse’s or child’s PPF account also qualify for tax breaks.
  • Factors affecting PPF Interest Rates:

    Minimum and Maximum PPF Deposits

    The minimum deposit required to be made every year is Rs.500. The maximum that a person can deposit in a year is currently Rs.1.5 lakhs.Failure to make an annual deposit, in any year, will lead to inactivation of the account. Deposits can be made in a lump sum i.e. the entire amount to be invested can be paid-into the account at one time, or it can be spread over 12 installments in a year or spread over up to 2 installments a month.

    Defaults, Inactivation and Reactivation of PPF Accounts

    Money has to be deposited every year to keep a PPF account active. At the very least, the minimum requirement of Rs.500 should be met. If this isn’t done for any financial year, during the 15-account’s year tenure, the account is deemed inactive.To reactivate the account, an account holder has to pay a penalty of Rs.50. The penalty applies for each year the account has been inactive.Loan and withdrawal facilities cannot be availed while a PPF account is inactive. Also, interest will not be earned during the year(s) the account is inactive.

    Withdrawals or Closure of a PPF Account

    PPF accounts cannot be closed before maturity i.e. before the end of year 15. Even if an account becomes inactive, funds accrued therein cannot be withdrawn until the end of the 15 year. On completing 15 years, the entire amount held in the account, along with the interest accrued, can be withdrawn freely and the account can be closed.

    Extension or Renewal of PPF Accounts

    Although accounts mature at the end of the 15th financial year from the year the account is opened, account holders can choose to extend the tenure. Tenures can be extended in 5-year blocks with or without making further investments.

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