PPF is an investment option to save taxes and earn assured returns. It is a very easy process to open a PPF account. One can open it at a Post Office or more easily at the designated banks (State Bank of India, ICICI Bank, Axis Bank and Punjab National Bank).Indian Government has taken the initiative of PPFwhich offers security, risk-free returns as well as complete capital protection. The interest rate which is currently 7.8% and is compounded annually. The interest rate is set by the Finance Ministry every year and is paid on 31st March. The interest is paid on the lowest balance between the close of the 5thday and last day of every month. The PPF has a tenure of 15 years. The tenure can be extended in blocks of 5 years as many times as you want.
Key Features of the PPF Scheme
- Interest rates: Interest rates are declared by the central government annually. Interest earned is compounded yearly. The current rate of interest is fixed at 7.8% p.a.
- Duration: 15 years; account continuation is allowed beyond maturity for 5 years at every renewal, with or without making additional deposits.
- Initial investment: 100 to open the account
- Annual Deposit Amount: 500 – Rs.1.5 lakhs per year (can be revised as per government directive)
- Deposit frequency: A deposit has to be made every year, for 15 years, to keep the account active. Failure to maintain the minimum annual investment will lead to an inactive account.
- Deposit modes: Via cash, cheque, PO, DD, online funds transfer; as a one-time deposit or up to 12 installments.
- Withdrawals: Withdrawals can be made partially every year from year 7; whole amount withdrawal of funds can be made only at maturity.
- Tax Benefits: Interests are tax-free and deposited amounts are tax deductible U/S 80C of the Income Tax Act.
- Nomination: Allowed; on opening the account or after.
- Fund Transfer: Transfers between bank branches or post offices is done for free but the transfers between people are not allowed.
- Loan availability: Loans can be availed against funds held in the PPF account from year 3 to year 6.
- Renewal: Renewal or extension of the scheme is allowed, for an extra 5 years at a time.
- Joint accounts: Not allowed.
Benefits of Investing in a PPF Scheme
- Long-term investment: These accounts serve long-term investment goals with duration of 15 years and a lock-in period of 7 years. With interest rates changing annually, effective returns tend to be more attractive.
- Retirement planning: Long-Durations, compounded, tax-free returns and capital protection.
- Tax-free returns: Tax-free interest and withdrawals.
- Low-risk: As it is a government initiative, there is a low risk of default.
- Easily accessible: PPF accounts can be opened at public banks or post offices and selected private banks.
- One PPF account can be opened per person he/she must beIndian resident and having an age of 18 years or more and there is no upper age limit for opening this account.
- Accounts can be opened for minors. Minors are those below the age of 18 years. The maximum limit of deposits made in the minor and the major’s/guardian’s account isRs.1.5 lakhs per year.
- Non-resident Indians (NRIs) cannot open a PPF account,
- HUFs cannot open a PPF account, effective 2005. Those accounts opened by HUFs before May 13 2005, can be continued until maturity without further extensions. An individual cannot open an account for an HUF (Hindu Undivided Family).
- Foreigners cannot open a PPF account.
Minimum and Maximum PPF Deposits
The minimum deposit required is Rs.500 and the maximum is currently Rs.1.5 lakhs. If an individual fails to make an annual deposit, in any year, will lead to inactivation of the account. Deposits can be made in a lump sum.
Tax Advantages of Investing in the PPF Scheme
- PPF deposits fall under the EEE (Exempt, Exempt, Exempt) tax category.Deposits made under this scheme can be claimed as deductions under section 80C.Interest earned on PPF is not taxable.Amounts withdrawn from the account are exempt from income tax.
- Amounts deposited in a spouse’s or child’s PPF account also qualify for tax breaks.
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