Wednesday, 07 December 2022

All About Public Provident Fund Account

All About PPF Account

Public Provident Fund is a government-backed savings cum-tax saving scheme that enables investors to accumulate a retirement corpus while saving on annual income tax. PPF account is a hundred percent risk-free, and it is one of the limited saving schemes that can beat 6 percent yearly average inflation growth. Currently, the PPF interest rate is at 7.1 percent, but there are some other important rules that an investor should know.

  • Public Provident Fund interest rate: Currently, the PPF interest rate is 7.10 percent. PPF interest is calculated every month but compounded annually.
  • Interest calculation: PPF interest is given on the minimum PPF account balance available between the 5th and month-end. So, if a PPF account holder payment from the 1st to the 4th date of a month, the investor is eligible for PPF interest. So, for monthly PPF investors, it is advisable to invest from 1st to 4th of the month. In contrast, lump-sum annual depositors should deposit from 1st to 4th April and get PPF interest for the entire financial year on the deposit.
  • PPF deposit: A PPF account holder must deposit at least ₹500 in one financial year to keep its account active. Any investment above ₹1.5 lakh in a single financial year won't get a PPF interest rate on the excess deposit. That means the account holder can deposit a minimum of ₹500 to a maximum of ₹1.5 lakh in one's PPF account.
  • Account rules: One person can have only one PPF account, and joint account opening is not allowed in the PPF.

 All About PPF Account 1unsplash image

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  • Withdrawal rules: A PPF account holder can entirely withdraw the PPF account balance upon maturity only, i.e., after the completion of 15 years. However, in the case of a financial emergency, the scheme permits partial PPF withdrawal from the 7th year of account opening. Premature withdrawal is allowed after the ending of 4 years of PPF account opening.
  • Benefit of Income-tax: As mentioned above, any deposit above ₹1.50 lakh in one financial year is neither eligible for income tax exemption nor PPF interest rate. As per Section 80C of the Income Tax Act, a PPF deposit up to ₹1.50 lac in one financial year can be claimed for income tax benefit. This tax benefit under Section 80C has to be claimed while filing an income tax return (ITR). Likewise, the PPF maturity amount is 100 percent tax exempted at withdrawal.
  • How to activate a PPF account: Failing to deposit a minimum of ₹500 in one financial year leads to freezing the PPF account. To start a PPF account, there is a penalty of ₹50 per year.
  • Security against bankruptcy: A PPF account can't be attached by a person to pay off debt, not even by order of a court decree.
  • Account extension: On completing a 15-year maturity period, an account holder can extend one's PPF account in 5 years for unlimited times.
  • Loan against PPF: An account holder is eligible for a loan against a PPF account between the 3rd and 5th year of account opening. The loan amount can be a maximum of 25 percent of the 2nd year immediately preceding the loan application year.

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