PPF investment is one of the most preferred investment plans. The main reasons behind this are
- PPF Investment is eligible for tax deduction under section 80C.
- The return is fully tax-free.
- An interest rate on other investments like fixed deposit is also cut down.
Tax Benefit Under PPF Investment
Due to the tax benefit, PPF is still considered one of the main tax saving investment plans for investment portfolio.
Investment up to Rs 1,50,000 every year is allowed for tax deduction under section 80C. Any amount above this neither earn any interest nor eligible for tax deduction.
The return on PPF investment is also tax-free. So, if you compare present interest rate (7.8%) with the inflation rate ( around 6%), your real return will be 1.8% (near 2%).
Fixed deposit cannot match this because the return on fixed deposit is not tax-free.
PPF Investment Amount
Initially, Rs 100 is to be deposit to open PPF account. Later on, you can invest in the multiples of 5 with a minimum amount of Rs 500 per annum and a maximum of Rs 1,50,000.
You don’t need to pay in one shot, you can invest by a way of SIP ( make, up to 12 installments in a year with different amount).
Tenure of PPF investment is 15 years. This can be extended for 5 years at every renewal ( with or without making additional deposits). Once your account matures, you have 3 option:-
- You can withdraw your maturity amount, which will be tax-free.
- You can extend your account by 5 years without making any further contribution and continue to earn interest on it.
- Extend your account by 5 years and continue making fresh contributions, like as earlier.
PPF Account Interest Rate in Last 31 Years
|1/04/2016 – 30/09/2016||8.1%|
|1/10/2016 – 31/03/2017||8.0%|
|1/04/2017 – 30/06/2017||7.9|
PPF Account Opening
You can open PPF account with any nationalized bank and post office. You only have to fill the PPF form along the required documents and photograph and deposit with the bank branch.
PPF Account Online
For online apply, download the PPF form from the bank’s website with whom you want to open PPF account (Form is easily available online). After filling the form, you have to visit the bank branch for submission.
You may also have to fill the KYC form along with PPF form ( depends upon bank policy). Once your formalities are completed, you will receive a passbook which will record all your transactions.
PPF SBI Form
My Advice, open your PPF account with the bank in which you already have an account. You can easily investment in PPF through online money transfer. In post office case, you need to visit post office for deposit.
Partial withdrawal is allowed after the completion of 5 full financial years from the end of the financial year in which you opened PPF account.
For Example- Suppose X opened PPF account on 1 Dec 2016. On 31st March 2017, account opening financial year ends. From that time, after the completion of 5 financial years, X can withdraw the money ( from 1 April 2022).
Only one withdrawal can be made every year.
PPF Withdrawal Limit
The amount that can be withdrawn is equal to lower of
- 50% of the account balance at the end of the year immediately preceding the current year.
- 50% of the balance as at the end of the 4th year, immediately preceding the current year.
Loan Against PPF
You can take a loan against your PPF account any time after the completion of 1 full financial year from the end of the financial year in which PPF account opened but before the expiry of 5 full financial years.
Let me try to make this simple
Suppose X open PPF account in Sep 2012. The end of the financial year in which PPF account was made is 31st March 2013. Expiry of one financial year from the end of that financial year makes it, 31st march 2014
So from this date onwards i.e 1 April 2014, before the expiry of 5 full financial years i.e 5 years from 31st March 2013 that brings us to 31 March 2018, X is entitled to apply for a loan.
You may also like to read Power of Compounding
Some interesting things related to loan against PPF
- The loan sanctioned will be Up To 25% of the amount standing to his credit at the end of the second year immediately preceding the year in which the loan is applied for.
- Generally, the interest rate on loan is 2% higher than the PPF interest rate.
- The principal is to be repaid within 36 months.
- Only after the repayment of the first loan can apply for the second loan.
PPF Account Rules
- The age should be 18 years or more.
- The applicant should be Indian resident. NRI’s are not eligible to open a PPF account.
- Only one PPF account can be opened per person. If you have two PPF accounts, your second account will be deactivated and the only principal account will be returned.
- HUF cannot open PPF account, effective from 2005.
- Foreigner is not allowed to open PPF account.
- PAN Card
- Aadhar Card
- Age proof in case of a minor child.
- Account opening form, along with nomination form if the nominee is being named.
- Bank may request KYC form or some other additional form.
FAQs Related To PPF Investment
Q- Is it possible to prematurely close a PPF account?
Ans- No, a PPF account cannot be closed prematurely, except in the case of account holder death.
Q- How many PPF accounts I can open at any time?
Ans- At any time, you are allowed to have only one PPF account. If at any time it is seen that you have 2 PPF accounts, your second account will be deactivated and only principal will be returned.
Q- What is the best time to invest in PPF?
Ans- The best time to invest in PPF is between 1st and 5th of any month because interest is calculated for each month on the lowest balance in your account, between the close of 5th day and the end of the month.
Q- What Happens if I forget to invest one year?
Ans- Your account will be considered deactivated. In order to reactivate, you have to a fine of Rs 50 for each year that you have not made any subscription and also make a minimum subscription of Rs 500 for each year you have missed.
Q- Can I open PPF account in the name of my minor child?
Ans- Yes, you can open PPF account in the name of your minor child. The contribution made towards that account will be allowed for tax deduction under section 80C.
Q- If I make a contribution towards my spouse account, will this be allowed for a tax deduction?
Ans- Yes, contribution towards own account, spouse account, and minor child’s account is allowed for a tax deduction.
Q- I deposited Rs 1 lakh each in my own account and in my minor child’s account. How many deductions can I claim?
Ans- The maximum investment cap of Rs.1.5 lakhs applies to all contributions you make to your account, your minor child’s account and/or your spouse’s account, collectively. So you can claim a maximum deduction of Rs 1.5.
Q- Can I transfer my PPF account?
Ans- PPF account cannot be transferred from one person to another but can transfer from one authorized bank or post office to another.
Q- I am an NRI, can I open PPF account?
Ans- No, an NRIs are not eligible to open PPF account. But, if you already had a PPF account, when you were resident in India and during the tenure of PPF you became an NRI, then you are eligible to continue to investing in the account until it matures.
Q- How can I nominate a nominee?
Ans- Fill nomination form E along with the PPF application form. You can also nominate later on after opening the PPF account.
Q- I want to change the nominee, what I should do?
Ans0 Use form F for the change in the nominee.
Q- Which is the better option between PPF and ELSS?
Ans- This is one of the most asked questions on PPF. This is a detailed discussion in itself. But I want to say something in short.
There is one thing common in between PPF and ELSS, Both are tax saving investments along with the tax-free returns. But related to the different category of investment. One side PPF is fully secured but less potential investment option and on the other side, ELSS is highly potential having a higher risk.
So, it merely depends on the class of investor whether he/she is a risk taker or a secure player. 🙂
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