All about PPF – Public Provident Fund

PPF – Public Provident Fund, One of my favorite investment and tax savings.

Public Provident Fund (PPF) is the source where if a person invest, he/she can reduce their tax liability. Therefore its being tax saving and safe, my favorite investment option. PPF account can be opened with post offices and with branches of other authorized bank ( e.g. SBI, ICICI etc ). PPF account can be opened by any person (self-employed person, person from unorganized sector, salaried employee etc).

PPF Account can be opened with amount of Rs. 500/-. After opening the account there is no fixed interval for depositing the amount in PPF but maximum installment cannot go beyond 12 installment in one financial year. You can deposit in any amount in your PPF a/c but it should not exceed Rs. 1.5 Lakh in a financial year.

Other investment schemes ( Insurance, Mutual Funds etc ) bind you to deposit a fix amount on fix dates while there is no such restriction in PPF, in a financial year you can deposit any amount in Rs. 500 to Rs. 1.5 Lakh in total of 1 to 12 Installments on any dates.

This is not necessary to deposit same amounts every year. You can deposit any amount you wish ( maximum 1.5 Lakh ). i.e. if 1st year, you deposited 1 Lakh Rs., 2nd year you are not able to manage more than 20000 Rs. so you can deposit 20000 Rs.

You can open PPF a/c in name of all your family members ( including Kids ). There is NO AGE BAR.

Benefits of investing amount in PPF account is as follows:

  • An investor can contribute a very nominal amount of Rs 500 only, which anyone can afford and maximum contribution can go upto Rs. 100000 in a year.
  • In PPF scheme there is no binding on the person investing money to deposit money at fixed date, or fixed amount. Even if in one financial year we are not able to deposit the money, then too we can continue PPF account by paying minimum Rs. 500 financial year.
  • Investor will get deduction for the amount deposited by him/her while computing their income tax liability i.e. it will result in reducing their tax liability (Maximum deduction allowed Rs. 100000 while computing Income Tax Liability, Increased to Rs. 150000 in Union Budget, 2014). Also, on maturity when he is receiving money, it’s completely Tax Free.
  • PPF account balance cannot be attached to any order or decree of court in terms of debt and liability.
  • In the need of money investor can withdraw money from their PPF account but only after completing of 6th year and at a time withdrawal amount cannot exceed 50% of the balance amount in the account.(Withdrawal can be done only once in a year)
  • Investor can take loan against the PPF account from 3rd year upto the 25% of the balance in PPF account.
  • Investor will earn interest @ 8.7% ( 2013 )  per annum without any risk of investing their money. Moreover interest rate is compounded every month i.e. you will get interest on interest also other than interest on your on fund. A person will be entitled to interest for a month if investor contribute the amount in PPF before the 5th of every month otherwise he/she will lose the interest for that month.

PPF will mature after 15 years and this period can be extended in block of 5 years for an unlimited number of times at the request of investor. PPF Scheme is not available for a Non Resident Indian(NRI) i.e. only a resident indian can avail the benefits of PPF investments which are described above. But if you have opened PPF account and subsequently become NRI then you can continue till the maturity.

In case, if in between owner dies then the balance lying in the PPF account will be paid before its maturity to the legal heirs or person nominated by the owner of fund. But at no cost such legal heir & nominee can continue the PPF scheme.

Procedure for transacting in PPF account :

  • OpenaPPF account :
    • Fill an application form and submit it with the post office or any authorized bank.
    • Submit self attested photocopy of identity proof, proof of residence and 2 passport size photo.
    • After verifying all the documents and form by the authorized person over there, you will get a PPF passbook.
  • Maintaining a PPF account
    For depositing the money in PPF account you need to fill up the deposit slip and submit it with the PPF passbook to branch official. The branch official will deposit the money and will update the passbook accordingly. You can update this passbook frequently to have track of all your deposits in the fund and interest income.
  • Where youcanopenthePPF Account:
    • You can open PPF account with Post Office and with any branch of authorized bank. Banks like SBI and ICICI provides net banking facility also for transacting in PPF account.
    • You can give instruction to the your bank (if you have account in that bank) for transferring the particular amount in PPF account at particular date from your account.
    • Even you have the facility to transfer PPF account from one bank to other bank or from post office to bank. For this you have to give application and after reviewing the application head post master will check details and will transfer the balance. Simultaneously you have to file an application to the bank to open a new PPF account where such balance will get transferred and you will get new PPF passbook.(It is advisable to keep copy of old passbook for Income tax purpose)
  • Recovering Lapsed PPF account
    If in a particular year, you will not deposit any amount in your PPF a/c, it will lapse. But need not to worry, you can simply re initiate the same by paying penalty of Rs. 50 Each year for no. of years you missed the deposits.

Difference between the EPF and PPF:

Many people are confused between Employee provident Fund (EPF) & Public Provident Fund (PPF).

Both EPF & PPF gives you the slow & steady return, both are tax saving investment i.e. reduces your tax liability but there is difference between EPF & PPF which is as follows:

Public Provident Fund Employee Provident Fund
It is for self employed individuals, salaried employees, person from unorganized sector It is only for Salaried employees.
Opened by individual with the post office or branch of authorized bank Opened by employer with Employee Provident Fund Organization
Contribution to the fund by owner only Contribution towards the fund by employer and employee both
Return on investment is 8.7% Return on investment is 8.5%
For salaried employee in case of transfer balance lying in the PPF account will not be transferred Here in case of transfer balance standing in EPF account need to be transferred with the new employer
Investor can withdraw complete balance after completion of 15 years. Employee can withdraw amount only on retirement and resignation.

From above it can be seen that how beneficial is PPF. By investing in PPF not only you will reduce your tax liability, it will also give you a slow and steady return on your fund without any risk involved in it. This is the tax saving and safe investment for the Resident Indian.

Note : Interest rate given above is w.e.f. 01.04.2013.

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1 Comment on this post

  • SAROJ KUMAR

    April 6, 2015 at 8:18 pm
    i didn't submit the minimum amount in my ppf account in the financial year 2014-15, i went to the branch but they didn't know the account number where the penalty amount should be deposited, my question is the penalty amount for each financial year should automatically debited from my ppf account if i deposit online in my ppf account in the next financial year?

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