PUBLIC PROVIDENT FUND

A fully tax-exempt savings scheme established by the Central Government.

 

DETAILS AND FAQ

 

A PPF account can be opened by any Resident Individual of India in specified national or private banks and post offices. In addition to one’s personal PPF account, the individual can also open an account in the name of his/her spouse and minor child.

 

How the PPF scheme works

 

  1. The minimum annual deposit is ₹500 and the maximum is currently ₹1,50,000. The annual deposit in accounts of the individual, spouse and minor child together should not exceed the maximum limit, i.e. ₹1,50,000.
  2. The deposit can be made in one lump sum or in a maximum of 12 installments during the year.
  3. The duration of the scheme lasts for 15 years, at the end of which the subscriber can apply for the scheme to be extended in 1 or more blocks of 5 years.
  4. The interest rate is currently 7.8% p.a compounded annually. The rate of interest is decided by the Government of India and is subject to change.
  5. The individual can avail loans from his own PPF account between the start of the 3rd year to the end of the 5th year:
  • The interest rate on the loan is 2% more than the PPF interest rate.
  • The loan is repayable within 36 months.
  • A second loan can be taken during the same period (i.e between year 3 and 5) once the first loan is completely repaid.

6. The subscriber is eligible to borrow 25% of the amount of the corpus as at the end of the previous financial year.

7. There are various withdrawal options available.

  • From the 7th year onwards, the subscriber can withdraw an amount equal to 50% of the balance that stood in the account at the end of the 4th year immediately preceding the year in which the amount is withdrawn, or 50% of the amount of balance at the end of the preceding year; whichever is lower. However, only one withdrawal per year is allowed.
  • If the PPF account is extended with contribution after 15 years, the subscriber is allowed to make an annual partial withdrawal of 60% of the amount standing to his credit before the extension.
  • If the PPF account is extended without contribution after 5 years, the subscriber is allowed to make an annual withdrawal of any amount from the account.

8. There are various maturity options available:

  • At the end of 15 years, the subscriber can choose to close his account and make a complete withdrawal (which is tax free).
  • The subscriber can choose to extend his account for blocks of 5 years without contributing anything more to the account while the balance in the account continues to earn tax free interest.
  • The subscriber can choose to extend his account for blocks of 5 years with further contribution and continue to earn tax free interest.

9. The subscriber can nominate one or more persons to his PPF account:

  • On the death of the subscriber, the balance in his account will be given to the nominee or legal heir irrespective of the 15-year tenure.
  • The nominee or heir is not allowed to continue the contribution and the account will be closed.
  • The PPF account can be transferred from one branch/bank/post office to another branch/bank/post office.

 

Tax benefits

 

a. The annual contribution qualifies for rebate under section 80C of the Income Tax Act subject to the maximum limit of ₹1,50,000.

b. The interest received under this scheme is exempt from tax.

c. The total amount received on maturity of the scheme is also exempt from tax.