Public Provident Fund Scheme- 2019
The Scheme introduced by the National Savings Organization in 1968 to mobilize small savings. The New PPF (Public Provident Fund) Scheme, 2019 has been introduced in place of existing Public Provident Fund Scheme 1968 to promote small savings and avail benefits in Income Tax. Interest earned on deposits in the PPF account are not taxable. Deposits made towards PPF accounts can be claimed as tax deductions. This makes the PPF Scheme one of the most tax efficient instruments in India. It was launched to encourage savings among Indians in general, especially to encourage them to create a retirement corpus.
Since this scheme was launched to encourage savings across income classes, minimum deposit requirements are very low and affordable. They are also tax-free accounts, easily accessible, safe (being backed by the government) and simple to understand, making them a popular investment avenue for a large majority of individuals in India.
PPF accounts can be opened at any nationalized, authorized bank and authorized branches / post offices. PPF accounts can be opened at specific private banks as well. These accounts can be opened by filling up the required forms, submitting the relevant documents and depositing the minimum pay-in at such branches/offices that have been authorized for the same.
Interest rates are set and announced by the Government of India. Interest is calculated for a financial year according to the rate announced for the said year i.e. unlike bank FDs the rates are not fixed for the entire tenure of the holding. The maximum amount that can be deposited in the account is also subject to change. The period from April 1st - March 31st i.e., a financial year is considered to be a deposit year for a PPF account.
Essential features of PPF
· Investment Limits: PPF allows a minimum investment of Rs 500 and a maximum of Rs 1.5 lakh for each financial year.
· Opening Balance: The account can be opened with just Rs 100. Annual investments above Rs 1.5 lakh will not earn interest and will not be eligible for tax saving.
· Deposit Frequency: Deposits into a PPF account has to be made at least once every year for 15 years.
· Mode of deposit: The deposit into a PPF account can be made either by way of cash, cheque, Demand Draft or through an online fund transfer.
· Nomination: A PPF account holder can designate a nominee for his account either at the time of opening the account or subsequently.
· Joint accounts: A PPF account can be held only in the name of one individual. Opening an account in joint names is not allowed.
Who is eligible to invest in PPF?
· Any Indian citizen can invest in PPF.
· One citizen can have only one PPF account unless the second account is in the name of a minor.
· NRIs and HUFs are not eligible to open a PPF account.
Loan against PPF
· You can take a loan against your PPF account between the 3rd and 5th year.
· The loan amount can be a maximum of 25% of the 2nd year immediately preceding the loan application year.
· A second loan can be taken before the 6th year if the first loan is repaid fully.
PPF withdrawal
As a rule, one can fully withdraw the PPF account balance only upon maturity i.e. after the completion of 15 years. Upon completion of 15 years, the entire amount standing to the credit of an account holder in the PPF account along with the accrued interest can be withdrawn freely and the account can be closed.
However, if account holders are in need of funds, and wish to withdraw before 15 years, the scheme permits partial withdrawals from year 7 i.e. on completing 6 years.
An account holder can withdraw prematurely, up to a maximum of 50% of the amount that is in the account at the end of the 4th year (preceding the year in which the amount is withdrawn or at the end of the preceding year, whichever is lower). Further, withdrawals can be made only once in a financial year.
