The Public Provident Fund (PPF) is a small savings scheme that was introduced by the Government of India. It is a 15-year scheme that offers an 8% rate of interest on the investment. The interest that is earned is compounded on a yearly basis. Under Section 80C of the Income Tax Act, 1961, tax benefits of up to Rs.1.5 lakh can be availed under this scheme.
Given below are some of the main features of the PPF scheme that are offered by the post office:
Rate of interest: The Indian Government reviews the interest rates on a quarterly basis. As per the website of the post office, the interest that is earned is also free of tax. Currently, for the fourth quarter of the financial year 2018-2019, the rate of interest is 8% and it is compounded on an annual basis.
Closure of account before maturity: Account holders will not be able to close their accounts before it matures. Therefore, before the 15-year maturity period, premature closure is not allowed.
Maturity duration: The maturity period of a PPF account is 15 years.
Contributions: Individuals can open a PPF account by paying Rs.100. However, Rs.500 is the minimum amount that must be deposited every financial year, and the maximum amount that can be deposited is Rs.1.5 lakh.
Joint account: Individuals cannot open a joint PPF account.
Nominations: Individuals are allowed to add nominees when opening the account as well as after the account is opened.
Transfer of PPF account: PPF accounts can be transferred from banks to post offices and vice versa. PPF accounts can also be transferred from one post office to another.
Extension of PPF account: PPF accounts can be extended for a period of 5 years but must be done 1 year before maturity.
Tax benefits: Under Section 80C of the Income Tax Act, 1961, tax deductions are allowed on the deposits and the interest that is earned is tax-free.
Loan facility: Loans can be availed against the PPF account from the third financial year.
Number of accounts: An individual is allowed to open only one account under his/her name. Individuals who have opened an account at a post office cannot open another account at a bank. In case a second account has been opened in error, it is treated as an irregular account and no interest will be earned unless both the accounts are combined. Combining accounts can be done only on approval from the Ministry of Finance.
Attachment: A court cannot attach the PPF account and its balance. Therefore, debt collectors will not be able to access an individual’s PPF account to collect their dues. However, this rule does not apply for income tax officers, and the PPF amount can be used to collect debts.
Premature withdrawal: According to India Post, one withdrawal can be done every year after the sixth financial year.
Modes of payment: Payment can be done in the form of cash or cheque to open a PPF account. In case payment is made by cheque, the date the cheque is realised will be the account opening date. Deposits towards the PPF account can be made in the form of online fund transfer, Demand Draft, cheque, or cash.
Since the PPF scheme was launched by the Indian Government, investing in the scheme is safe. The high returns that are earned from a PPF account make it a popular scheme to invest in.