Public Provident Fund Accounts (PPF)

A PPF or Public Provident Fund is a savings scheme offered by the Government of India. The interest on the account is paid by the government of India and set every quarter. It is also tax-free. The applicable PPF interest rate for 1st April to 30th June 2019 (Q1 FY 2019-20) has been fixed at 8.0%. The interest rate for January – March 2019 was also 8%

Importance of Opening a PPF Account

1)  The principal and interest in the PPF account are guaranteed by the Government.

Contributions to the account up to Rs 1.5 lakh per annum are tax-free. Interest on the PPF account is also tax-free.

2) Interest Rate for the PPF account is declared by the Government every quarter. PPF returns are higher than FD rates of many banks in that period.

3)The PPF account is immune from attachment from any order or decree of any court under the Government Savings Banks Act, 1873.

Eligibility Criteria for PPF

Any individual who is a resident of India can open a PPF account. PPF accounts can also be opened by parents for their minor children. NRIs cannot open PPF accounts. However, a resident Indian who has become an NRI after opening a PPF account can continue the account till maturity. Opening of joint accounts and multiple accounts are not allowed.

Minimum and Maximum Contribution

The minimum annual contribution is Rs 500 and the maximum is capped at Rs. 1.5 lakh. The maximum limit applies to contributions made by a person for himself and for a minor child. There can be a maximum of 12 contributions in a year.

PPF Tenure

PPF account matures after the expiry of 15 years from the end of the financial year in which account was opened. For example, if the PPF account was opened on Jan 1, 2010, it will mature on March 31, 2025, i.e. 15 years from March 31, 2015. At maturity, you can extend the PPF account indefinitely in blocks of 5 years at a time.

Taxability & Exemption

Public Provident Fund falls under EEE regime of taxation, i.e. Exempt-exempt-exempt. Contribution to PPF account (up to Rs 1.5 lakh per annum) is eligible for deduction under section 80C of Income Tax Act, interest earned is exempted and maturity proceeds are also exempted from tax. The interest earned on the PPF account must be mentioned on the income tax return.

Partial Withdrawal

Partial withdrawals can be made after the expiry of 5 years after the year in which the account is opened. Example, if the account was opened on Jan 1, 2012, withdrawal can be made from the financial year 2019-20 onwards. Only one partial withdrawal is allowed per financial year. The maximum amount that can be withdrawn per financial year is the lower of the following :

1) 50% of the account balance as at the end of the financial year, preceding the current year, or

2) 50% of the account balance as at the end of the 4th financial year, preceding the current year.