What is Public Provident Fund-PPF Scheme

During one’s earning years, one must save for a rainy day. The Government under Section 80C of the Income Tax Act helps provides a tax exemption for investing in long-term savings options. Examples of these savings are the General Provident Fund (GPF or Employee Provident Fund EPF), insurance policies, PPF, fixed deposits, government bonds etc. Let us take a quick, simple look at the PPF Scheme, and how it scores over other investment options.

Advantages of investing in PPF

PPF scheme is similar to the GPF or EPF schemes. In the GPF scheme, both employers and employee contribute to the amount saved each month, versus only the investor in the PPF scheme.

There is no upper age limit for opening this account, which can be opened with just Rs 100, in Form A. Minimum annual savings is Rs 500.  A resident Indian older than 18 years can open an account either online on the PF portal or offline, at most banks, post offices etc. Documentation for proof of identity, PAN, address and proof of age is needed. Nomination facility is available.

Non-resident Indians (NRIs), Hindu Undivided Families (HUF) and foreigners are not permitted to invest in a PPF account.

The maximum limit for tax purposes is Rs.1.5 lakh’s per year, per person, and includes deposits in a spouse and minor children’s accounts.  The entire amount earns 7.9% interest. The interest rate is fixed by the government periodically, unlike with bank deposits which have a fixed interest rate. Compound interest is calculated on active accounts and credited at the end of each year. It is for the total amount in the account as on the 5th of the preceding month.

Minimum deposit of Rs 500 per year is required to keep the account active. Maturity period is 15 years and extendable for another 15 years in blocks of 5 years. Total carry-over of the corpus is allowed, and inactive accounts can be renewed.

Withdrawal, loans etc. are allowed after a specified lock-in period. The corpus in PPF scheme is like a term deposit and can be withdrawn only at maturity and is tax-free!

Since the last two decades interest rates have moved down from 11% in 2000-2001 to 7.9% for 2017-2018, and the limit of exemption from Rs 50,000 to Rs 1,50,000.

The PPF scheme is a safe investment for those with less risk-taking ability who start early and save small sums annually. The entire amount is tax exempt, the interest rate is stable, and the scheme is hence an ideal choice for all ages.