All you wanted to know about Public Provident Fund

Public Provident Fund (PPF) is a savings-cum-tax-saving instrument. It also serves as a retirement-planning tool for many of those who do not have any structured pension plan covering them. Individuals and Hindu Undivided Families can open the PPF account. Even in the name of a minor account can be opened. A person can have only one account in his name. Non-Resident Indians (NRIs) are not eligible to open an account under the Public Provident Fund Scheme. If a resident who subsequently becomes NRI during the currency of maturity period prescribed under Public Provident Fund Scheme, may continue to subscribe to the Fund till its maturity on a non-repatriation basis.

PPF rate of return

Rate of Return on PPF is 8 % p.a. (Compounded annually). Interest is calculated on the lowest balance between the close of the fifth day and the last day of every month.

PPF offers Flexible Investment Option

The contribution to the account can vary from year to year, from a minimum of Rs 500 to a maximum of Rs 70,000 in any given year. Investments in a PPF account can be made in multiples of Rs 5, either lumpsum, or in installments (not exceeding 12 in a year and more than one deposit can be made in a month). The credit to the PPF account is made on the date of presentation of the cheque and not on the date of its clearance. This allows flexibility in savings.

PPF tenure

The tenure of the PPF account is 15 years, which can be further extended in blocks of 5 years each for any number of blocks. The extension can be with or without contribution. An account holder, continuing with fresh subscription, can withdraw up to 60% of the balance to his credit at the commencement of each extended period in one or more installments but only once in a year.

Mode of payment for PPF investments

Every subscription shall be made in cash or through a crossed cheque or draft or postal order, in favour of the accounts office, at the place at which that office is situated. In case of any cheque, draft or postal order should be drawn at a bank or post office at that place.

PPF nomination facility

Nomination facility is available. In the case of joint nominees, it is possible to allocate the percentage of benefits to each nominee.

Availability of Loans

A loan repayable in 36 months can be obtained in or after the 3rd year, up to 25 per cent of the balance at the end of the preceding financial year. The interest charged on the loan is 1 per cent higher for the first 36 months, and thereafter, 6 per cent on the outstanding amount. A second loan can be obtained before the end of the 6th financial year if the first one is fully repaid.

Withdrawals from PPF account

A withdrawal is permissible every year from the 7th financial year of the date of opening of the account. Only if the amount does not exceed 50% of the balance at the end of the 4th preceding year, or the year immediately preceding the year of the withdrawal, whichever is lower, less the amount of loan if any. There is no tax on the amount withdrawn. The withdrawal can be used to reinvest in the PPF account.

PPF defaults & revival

If the PPF account-holder fails to deposit the minimum Rs 500 in a given financial year, the account is considered as discontinued but the interest will continue to accrue and be paid at the end of the term. Loans and withdrawals are not allowed. This account can be revived on payment of a fee of Rs 50 for each year of default, along with the arrears of subscription of Rs 500 for each such year

PPF tax concessions

Interest earned is fully exempt from tax without any limit. Annual contributions qualify for tax rebate under Section 80C of Income tax Act. Contributions to PPF accounts of the spouse and children are also eligible for tax deductions. Balance in PPF account is not subject to attachment under any order or decree of court. But, Income Tax authorities can attach the account for recovering tax dues.