The Public Provident Fund is a savings-cum-tax-saving instrument in India, introduced by the National Savings Institute of the Ministry of Finance in 1968. The aim of the scheme is to mobilize small savings by offering an investment with reasonable returns combined with income tax benefits backed by the Central . Balance in the PPF account are no subject to attachment however the tax authorities & government authorities can attach the account for recovering their tax dues.
Though, Finance Minister on May 13th,2020 announced that Government of India will be paying the Employer and employees contribution to EPF account of employees for next 3 months (June to august 2020) and the benefit is for the establishment of upto 100 employees and 90% of those employees are earning less than Rs 15000 per month. Further, reduction in the contribution of statutory provident fund rate from 12% to 10% for next 3 months which will help the net take home salary of employees and also helpful to employers.
WHAT IS PPF ACCOUNT
Public Provident Fund (PPF) is a long-term investment scheme that provides income tax deduction for the amount invested during the year u/s 80C. It offers attractive rate of interest and return on the invested amount.
ELIGIBILITY
Individuals who are residents of India are allowed to open account under Public Provident Fund, and are entitled to tax-free returns.
NRIs (Non-Resident Indians) are not allowed to open new PPF accounts. however, if ones residential status subsequently changed to NRI, the account was allowed to be run till 15 years maturity period. PPF is a 15 year scheme , which can be extended indefinitely in blocks of 5 years, However, for a resident turned NRI, the extension of PPF is not allowed.
INVESTMENT AND RETURN
Minimum of Rs 500 and maximum of Rs 1.5 Lakhs in each financial year. The amount can be deposited in Lump sum or in maximum of 12 instalments. Any amount in excess of Rs 1.5 Lakh will not earn interest and will not be eligible for tax saving.
The Finance Ministry announces the rate of interest for PPF Account every quarter. The interest is compounded annually and is paid on 31st march every year. Interest is calculated on the lower balance between the close of 5th day and last day of every month.
The current rate of Interest is 7.1% (April 2020-June 2020), which was 7.9% for July 2019-march 2020 and the interest is compounded annually.
DURATION OF SCHEME
The original duration is 15 years. Thereafter, on an application by subscriber, it can be extended for 1 or more blocks of 5 years each.
PPF MATURITY OPTIONS
There are 3 options available once maturity period is over:
- Complete Withdrawal.
- Extend PPF Account with no contribution-
- PPF account is extended after the completion of 15 years and the subscriber do not have to put any contribution after maturity.
- It’s a default option where, if subscriber doesn’t take any action within 1 years of maturity of his PPF account ,this option automatically activates.
- any amount can be withdrawn from PPF A/c under this option.
- Restriction: only one withdrawal is permitted in a financial year.
- Extend PPF account with contribution-
- Subscriber can put money in his PPF account after extension.
- Subscriber need to submit Form H in the bank where he is having PPF account within 1 year from the date of maturity (before completion of 16 years in PPF).
- Can withdraw only 60% of his PPF amount (available at the beginning of the extended period) within entire 5 years block.
- Single withdrawal permitted every year.
LOAN AGAINST PPF
One can take loan against its PPF account between 3rd and 5th year. The loan amount can be maximum 25% of the balance at the end of the 2nd year immediately preceding the loan application year. Such withdrawal to be repaid within 36 months. Second loan can be taken before 6th year if first loan is repaid fully.
PPF WITHDRAWAL
There is lock-in-period of 15 years and after 15 years of maturity, full PPF amount along with interest can be withdrawn freely (tax free). However, premature withdrawal can be made from 7th year (after completion of 6th year). Maximum amount that can be withdrawn prematurely is 50% of the amount standing at the end of 4th year (preceding the year in which amount is withdrawn or at the end of preceding year, whichever is lower). Further, withdrawal can be made only once in a financial year.
TAX BENEFITS OF INVESTING IN PPF
- PPF falls under EEE (Exempt, Exempt, Exempt) tax basket.
- Annual contribution to PPF account is eligible for tax benefit U/s 80C of Income tax Act. Tax benefit is capped at Rs 1.5 lakhs per Financial year.
- Interest earned is Exempt from Income Tax.
- Maturity Proceeds are also exempt from tax.
Hope the Article prove to be beneficial.
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