Public Provident Fund popularly known as PPF is a long-term investment scheme. PPF in India is governed by the Government of India. It offers an attractive rate of interests.
The returns from PPF are also fully exempt from taxes. Section 80C states that the principal amount invested in PPF qualifies for deduction whereas the interest received on PPF is exempt from taxes under Section 10.
The investor can invest minimum amount of Rs.500 to maximum amount of Rs.1,50,000 per annum. The investor can avail various services including loan facilities, an extension of the account and withdrawal services.
How to Open a PPF Account?
PPF Account can be opened and maintained through a branch of a bank. You can also set up your PPF Investment Account with a certified post office. The investor can also transfer his PPF Account from bank to post office and from a post office to a specific bank. The following basic documents are required to set up a Provident Fund Account:
• Duly fill the form for opening a PPF Account
• Identity Proof (Ex: PAN card, Driving License, Passport and Election ID)
• Current Proof of Residence
• Passport Size Photographs
Once the documents with the application form are filed you can maintain a functional PPF Account.
What Points Should I Consider Before Opening A PPF Account?
PPF Scheme has topped the investor’s top favorite investment schemes. However here are top tent things you should consider before opening a PPF Account.
1. Rate of Interest:
PPF investment is not subjected to stock market performances as it belongs under the asset category of Debts. The government sets the rate of returns on investment from PPF. Based on the yields of Government securities rate of interest is determined quarterly.
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2. Limits of Deposit
As mentioned above, an investor can invest maximum Rs.1, 50,000 per annum. You can open the account in your own name or in the capacity of a guardian for a minor.
If contribution exceeds the maximum amount the additional amount is not eligible for tax deductions. Also you need to maintain Rs.500 annually in order to keep the PPF active.
3. Number of PPF Accounts
An individual can own only one PPF Account in his name. If a second account is opened it needs to be merged with the initial account otherwise you would lose out on interest on the second account created. The same should be mentioned in the application form.
4. Minor’s PPF Account
Single parent that is either the father or the mother can open a PPF account on behalf of the minor. Parents cannot open two separate accounts for the same child.
5. Closing of PPF Account Prematurely
After completion of 5 financial years the account under Provident Fund can be prematurely closed. Completion of 5 financial years is a pre- requisite. However in specific cases like serious illness and or higher education premature closure of PPF is approved. You need to submit documents supporting the reason. It is mandatory for closure of PPF.
6. Nomination- Form E
If you want to nominate a nominee you need to file a separate form called as Form E. Nomination provision is not included in the application form to open a Provident fund account.
7. Liability
Your PPF Account can’t be utilized to pay off debtors in case you have defaulted on a re-payment of loans. In case of failure to pay income tax, the Income Tax department reserves the right to charge your PPF Account for the amount outstanding.
8. Lowest Risk on Investment
PPF Scheme is a scheme which is backed by the Government. This helps the investment to be secured and the chances of default are minute.
9. Tax Benefits
A PPF Account deposits enjoy various tax benefits. The principal amount deposited into the account is eligible for deduction under Section 80C. The interest earned on PPF is also exempt from tax. Apart from the said deductions and exemptions, Amount deposited in PPF Account is also free from Wealth Tax.
10. Extension of PPF Account
PPF Account will mature in 15 years. But it hosts the option to extend the scheme for further 5 years within a year of maturity. You will enjoy the rate of interest admissible under PPF scheme as set by the Government. On withdrawal is allowed annually.
If you continue to deposit in the account after maturity you will be allowed to withdraw up to 60% of the balance amount at the beginning of every permitted year block of 5 years.
Public Provident Fund is suitable for investors who want to enjoy safe returns without taking any risk. Since it is governed by the Government PPF becomes a safe bet for investment.
Diversifying your investment with PPF and Equities is always recommended to enjoy higher rate of returns.