PPF, The Public Provident Fund is a savings-cum-tax-saving instrument in India, introduced by the National Savings Institute of the Ministry of Finance in 1968.
The main objective of the scheme is to mobilize small savings by offering an investment with reasonable returns combined with income tax benefits.
Importance of a PPF Account
A Public provident fund scheme is ideal for individuals with a low risk appetite. Since this plan is mandated by the government, it is backed up with guaranteed returns to protect the financial needs of the masses in India. Further, invested funds in the PPF account are not market-linked either.
Investors can also undertake the public provident fund regime to diversify their financial and investment portfolios. At times of downswing of the business cycle, PPF accounts can provide stable returns on investment annually.
Investment tenure
A PPF account has a lock-in period of 15 years on investment, before which funds cannot be withdrawn completely. An investor can choose to extend this tenure by 5 years after the lock-in period is over if required.
Principal amount
A minimum of Rs. 500 and a maximum of Rs. 1.5 Lakh can be invested in a provident fund scheme annually. This investment can be undertaken on a lump sum or installment basis. However, an individual is eligible for only 12 yearly installment payments into a PPF account. Investment in a PPF account has to be made every year to ensure that the account remains active.
Loan against investment
Public provident funds provide the benefit of availing loans against the investment amount. However, the loan will only be granted if it is taken at any time from the beginning of 3rd year till the end of the 6th year from the date of activation of the account.
The maximum tenure of such loans against PPF is 36 months. Only 25% or less of the total amount available in the account can be claimed for this purpose.
Useful Tools :- PPF Calculator
PPF – Tax Benefits
Income tax exemptions are applicable on the principal amount invested in a PPF as an account. The entire value of investment can be claimed for tax waiver under section 80C of the Income Tax Act of 1961. However, it should be kept in mind that the total principal that can be invested in one financial year cannot exceed Rs. 1.5 Lakh. If amount exceed above 1.5 Lakh then no tax benefits.
The total interest earned on PPF investment is also exempt from any tax calculations.
Therefore, the entire amount redeemed from a PPF account upon completion of maturity is not subject to taxation. This policy makes the public provident fund scheme attractive to many investors in India.
Key Features of PPF Account
- Minimum deposit ₹ 500/- & Maximum deposit ₹ 1,50,000/- in a Financial year.
- Loan facility is available from 3rd financial year upto 6th financial year.
- Withdrawal is permissible every year from 7th financial year.
- Account matures on completion of fifteen complete financial years from the end of the year in which the account was opened.
- After maturity, account can be extended for any number for a block of 5 years with further deposits.
- Account can be retained indefinitely without further deposit after maturity with the prevailing rate of interest.
- The amount in the PPF account is not subject to attachment under any order or decree of a court of law. Deposit qualifies for deduction under Sec.80-C of I.T.Act.
- Interest earned in the account is free from Income Tax under Section -10 of I.T.Act.
PPF Calculator
If you have a PPF account, you would be interested to know how much principal and interest has accrued after a certain number of years. previously, the calculation used to be complicated, and you would need an accountant to show you the figures.
The PPF Calculator does the work of several calculations in an instant. Fluctuating interest rates, which are revised every three months, are considered. it does the computation based on the information you provide. PPF Calculator sharemint help you to calculate your returns.