Public Provident Fund-PPF for Retirement | PlanYourWorld

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PPF – Public Provident Fund As Retirement Option In India

 Administrator  01-09-2017   02-12-2017

 PPF – Public Provident Fund As Retirement Option In India 

Public Provident scheme is a long term investment option that offers safety to the investors as these schemes are backed by the government. Moreover these schemes provide an attractive rate of interest and also, the interest income on these schemes is completely exempted from tax. The revised rate of interest in the UNION BUDGET for FY 2016-2017 stands at 7.9%.

Eligibility for the Scheme

PPF Scheme can be opened by the Indian individual residents of 18 years & above, and also by the individuals on the behalf of their minors. There is no upper limit of age under this scheme. PPF can be opened at any of the nationalised banks/authorised post offices. The period from 1st April to 31st March is considered as the financial year for this scheme. E.g. account opened in the month of December for the year 2011-2012, year 1 for the PPF account will be 1st April 2012-31st March 2013.

NRIs, Foreigners and HUF are not allowed to open PPF account.

Duration of Scheme

The original duration of the scheme is 15 years. The scheme can be further extended for as many blocks of 5 years each.

Investment Amount and Returns

PPF account can be opened with as low as rupees 100 but the minimum deposit in the account at the end of the year should be rupees 500. The PPF account holder can deposit up to an amount equivalent to 1.5 lacs per annum, any amount above1.5 lacs will not earn any kind of interest. The amount can be deposited in either lump sum or in instalments (maximum 12 per year). The deposits can be done through cheques, DD, online transfer, cash, PO. The rate of interest for this scheme is announced by the Government of India, the current rate prevailing stands at 7.9% p.a. compounding annually. Interest is given at the end of the financial year, which is calculated on the lowest balance between close of the fifth day and the last day of each month.

PPF Maturity Options

PPF subscriber is provided with the three types of option under this scheme:

  • Complete withdrawal
  • Extent the PPF account with contribution: With this option the account holder can put money in the PPF after the extension. To avail this option the holder has to submit Form H into the bank/post office within one year from the date of maturity.
  • Extent the PPF account without contribution: With this option the PPF account will be extended but there will be no contribution towards this scheme, and any amount can be withdrawn from PPF if the account holder chooses this option but with the limitation of one withdrawal each year.

Loan Benefit of this Scheme

Loan facility under this scheme is available from the begin of the 3rd financial year up to the end of 6th financial year from the begin year of the scheme. The rate of interest charged by the scheme is generally 2% more than the amount of PPF rate prevailing. The loan can be availed up to 25% of the balance at the end of 2nd year preceding the year in which loan is availed, and such withdrawals must be paid within 36 months.

Withdrawal from PPF Scheme

Under this scheme there is a lock in period of 15 years, however premature withdrawals can be done from the begin of the 7th financial year and maximum withdrawal that can be made is capped at 50% of the balance at the end of the 4th financial year or the balance at the end of the preceding year whichever is low.

Nomination facility

Nomination facility is available for two or more persons. The account holder can also decide the amount or the share per nomination.

PPF defaults

If in any year the minimum amount is not invested then the PPF Account is deactivated. To activate the account the holder has to pay 50 rupees as penalty along with the rupees 500 as deposit for each inactive year. In case of death of the holder the legal heirs are not allowed to continue the account of the deceased one and moreover if the balance in the PPF account is more than 150000 then the nominee has to prove their identity to claim the amount.

Premature Closure

The premature closure of the PPF account can be done only after the completion of 5 years, and premature closure of this scheme attracts the interest rate penalty of 1%.

PPF Taxation

Annual contributions under PPF qualify for the tax exemption under 80 C of the Income Tax Act up to an amount equivalent to 1.5 lacs, contributions done by spouse and children also qualify for the exemption.

Besides this, the interest earned and the maturity proceeds of the scheme are also fully tax exempt.

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