Public Provident Fund
The Public Provident Fund is a saving instrument which came into existence in 1968. Not only do you get to save through the scheme but you also get to be exempted from some taxes. A Public Provident Fund account can be opened in various financial and non-financial institutions. These include:
- State Bank of India branches and its subsidiaries.
- Designated branches of select nationalised banks.
- Designated post offices all over India.
Indian residents are eligible to hold a Public Provident Fund account but can only have one account under their name. The only exception to this is if they open one for a minor who is under their care.
While non-resident Indians are ineligible for a PPF account, one can continue operating a PPF account if they changed residency to another country when they already had a PPF account. In such a case they can continue being the fund’s subscribers but they won’t be allowed to extend the maturity date of their account after fifteen years.
To open a PPF account you will be required to provided some documents including filling an account application form otherwise known as Form A. You will also be required to provide a copy of the PAN card, a proof of identity(Voters card or passport) and a proof of residence(power bill, water bill etc)
Deposit and investment returns
The minimum deposit amount required is 500 rupees. This is also the minimum amount you will be required to be depositing every year. The maximum deposit amount is 150,000 rupees. Deposits can be made in a single lump sum payment every year or in 12 monthly instalments.
An average interest rate of 8.7% is earned per year from the deposits. It’s a compound interest rate which means that after earning the interest, the following year the principal amount eligible for interest will have increased by the amount you earned in interest thereby ensuring compound growth.
Tax Benefits of having a PPF account
The interest earned from a PPF account is exempt from tax. Moreover the accumulated balance in the account does not get charged a wealth tax.
PPF Account withdrawals
Though the maturity period of a PPF account is 15 years, you can make withdrawals if seven years have elapsed since you opened the account. The highest amount that you can withdraw before the end of the maturity period is half of the amount that was held in the account after five years. But if you wait for the 15-year maturity period to elapse you can withdraw everything without paying a single rupee in taxes.
Choices available upon maturity
One of the options available as mentioned above is withdrawing the full amount in the account upon the expiry of the 15-year maturity period. The second option is to apply for an extension without adding more contributions. This is what happens by default. In this case the balance continues earning interest and a single withdrawal is allowed annually.
The third option is ask for an extension while continuing to contribute. For this an account holder will be required to tender Form H to the financial institution where he or she has a PPF account before 16 years are over.