PPF – Public Provident Fund is one of the most popular 80C income tax saving option. This is mostly preferred by people who don’t want to take much risk but want to make a corpus for long term goal. PPF is also the best alternative of long term stock market investment. When people try to avoid stock market due to its volatile nature PPF can provide long term compounding interest on your savings. In this article we will try to explore all information about PPF account, its benefits and few disadvantages as well. We will also try to find out the best alternative of PPF account to make wealth as well as save income tax.
Know the Key Features About PPF account in India
- This is a long-term investment product. The maturity period is for 15 years.
- Mandatory lock-in period is 7 years. After that partial withdrawal is allowed. But complete withdrawal is allowed only after 15 years
- Under section 80C one can get income tax benefit up to max limit of 1.5 lakh. PPF comes under E-E-E status (tax exemption on investment, interest and maturity)
- The minimum amount to deposit in PPF account is Rs 500 / year and max is 1.5 lakh / year. This limit has been increased to 1.5 lakh from 1 lakh in last year’s union budget.
- The current rate of Interest of PPF account is 8.7%. Historically it has decreased sigficantly over the years. That means there is no guarantee that PPF account will be able to provide same interest in coming years. The interest is paid annually on compounded basis.
- PPF account can’t be a join account. You can open PPF account in the name of every family member. It is advised to open a PPF account as early as possible to get some long term benefit.
- You can also apply for loan against your PPF account
Useful Information about PPF account – Questions & Answers
In this section I will try to answer all the common queries related to PPF account.
How to open a PPF account?
One can open PPF account easily by visiting nearest SBI bank or ICICI bank. You can even open a PPF account in post-office. You need to provide your PAN number to open a PPF account. After application you will receive a pass book. You can transfer cash to your PPF account anytime in a year or you can execute a standing instruction from your SBI account or ICICI account and then transfer funds automatically. Remember if you open 2 PPF account then the 2nd account will be deactivated automatically.
Can I open PPF account for my kid?
Father and mother can open PPF account on be-half of their kid. In that case only one parent can open that account. Separately father and mother can have their own PPF account. The account will be in your kid’s name but you or your spouse will be the guardian.
What happen if I forget to transfer money to PPF account in a year?
Your account will be fined by Rs 50. To avoid that it is better to make the transfer automated.
Can I transfer my PPF account from Post office to SBI Bank?
You can transfer your PPF account to another bank or post-office. To do that you have to visit your PPF account branch and provide an application for branch transfer. Once your target branch receives the application form you have to open a fresh PPF account there by filling the KYC form.
Is the amount deposit in PPF account withdraw-able early?
Now this is one of the biggest disadvantages of owning a PPF account. If you are looking for a short term return then PPF is not for you. PPF has a lock-in period of 15 years. Partial withdrawal is allowed after completing 6 financial years. After that also only 50% balance accumulated till the end of fourth year can be withdrawn.
Can I take loan on PPF account?
You can take loan on your PPF account from the 3rd financial year, excluding the year of deposit. On your current balance you can take max 25% loan. E.g. if you have PPF account balance of Rs 1,00,00 then you can take loan of Rs 25,000. You have to repay your loan in 36 EMIs. The 2nd loan is permitted at the end of 6th year but for that you have to repay the first loan completely.
PPF Account matured – What is next?
After 15 years your ppf account will be matured. You can withdraw the entire amount without paying any income tax. In case don’t want to withdraw you can extend your PPF account further by 5 years and after that again by 5 years. In this extension amount deposit is not mandatory. Means without depositing any further money you can earn interest on your deposited amount for 5 year. If you want you can deposit as well.
Can NRI open PPF account?
No. NRI can’t open a PPF account. If a person has a PPF account and later become an NRI then he/she can deposit. But it’s better to close the account.
These are the basic information about PPF account one should know. If you are looking to build a wealth after 15 years then PPF may be a good choice. But remember that in long term PPF is also not able to beat inflation significantly. So exposure in stock market is must. But without any doubt PPF is one of the post preferred investment option for people who don’t want to take risk and save income tax on their earning.
Do you have a PPF account? Or you are still continuing your company’s EPF account? Do you think PPF is the best investment option? Or ELSS mutual funds are better than PPF? Share your thoughts and knowledge to include all information about PPF account in one place.