Public Provident Fund Scheme in Post office (PPF) – A Complete Guide to Know before Investing

Public Provident Fund Scheme in Post office (PPF) – Details, Features and Benefits

In India the interest rates on FDs and bank deposits are decreasing, in the meantime, public provident fund scheme in post office have come as a relief for a common man.

These public provident fund scheme is not only safe and risk-free, but they also give returns up to double the bank fixed deposits. This is the reason why middle class people believe the most in post office schemes despite investment options like stocks and mutual funds.

Let’s talk about Post Office’s Public Provident Fund Scheme i.e. PPF. It is a savings-cum-tax-saving investment option in India introduced by the National Savings Institute of the Ministry of Finance in 1968.

PPF investment is fully guaranteed by the Government of India. The aim of the public provident fund scheme is to mobilize small savings by providing an investment with handsome returns combined with tax benefits.

It is one of the most trusted saving schemes among Indian households. Government of India manages this scheme.

Public Provident Fund, along with other small saving schemes like the the Sukanya Samriddhi Scheme, Senior Citizens Savings Scheme (SCSS), and the National Savings Certificate (NSC), was launched by the Government of India to benefit senior citizens and small savers.

The money in the Public Provident Fund account and the returns it generates are guaranteed. It is a trusted choice for those who want safe and guaranteed returns.

It also offers tax benefits and falls under the Exempt-Exempt-Exempt (EEE) category. The interest earned on PPF deposits along with the accumulated amount is tax-free.

In addition, the money invested in PPF does not have any tax liability. It is exempted from an individual’s taxable income (Under Section 80C) for that year.

PPF account is not subject to attachment under any court order. However, Government authorities and Income Tax department can attach the account for recovering tax dues. The Government of India introduced the Public Provident Fund Scheme in 2019.

Key Features of PPF – Public Provident Fund Scheme

Investment (Minimum and maximum): In a PPF account, individuals can make a minimum investment of Rs. 500 and Individuals can make maximum investment of Rs. 1.5 lakh in one financial year.

Lock-in period: It has a lock-in period of 15 years from opening the account. Individual can withdraw the amount accumulated in a PPF account only at maturity, which is 15 years. In case of any financial emergencies, premature withdrawals are allowed.

Tax Benefit: It comes under the Exempt-Exempt-Exempt (EEE) category. The maturity amount, the principal amount, as well as the interest earned is exempt from taxes.

Interest Calculation: The interest rates on PPF account are pre-announced by the central government for each quarter. Interest is calculated every month and is credited to the PPF account at the end of every financial year.

The interest is calculated on the lowest balance each month after the 5th to the last day of the month. Hence, investors are advised to contribute to their account before the 5th of each month.

Loan against PPF: Public Provident Fund scheme offers loan facility. The loan against PPF balance can be taken only between the beginning of the 3rd year and the end of the 6th year.

Public Provident Fund interest rate

The government of India has declared an interest rate of 7.10 present under the rates announced on small deposits. The government changes it from time to time.

However, despite these changes, the interest rates of public provident fund do not come down much.

How much to invest

You can make a minimum of 500 rupees in a financial year under this saving scheme. You can deposit any maximum amount in it. There is also tax benefit on this scheme. You will get exemption up to a maximum of Rs 1.5 lakh under Section 80C of Income Tax.  

The Finance Ministry revises the PPF interest rate every three months. The PPF interest rate for the June quarter is 7.1%. On June 30, the Finance Ministry will take a decision on the interest rate of public provident fund.

The interest is transferred to your PPF account at the end of every financial year. According to the current rate, if you invest Rs 3000 monthly in public provident fund scheme, then you will get a lump sum of Rs 989931 after 15 years when it matures. This amount will be tax-free. Your total deposit will be Rs 547500 during 15 years.

You also get the benefit of loan against your PPF account. From the financial year from which you start investing, you get loan facility from the next financial year. This loan facility is available for a period of five years.

You can get a loan up to 25% of the amount deposited in your PPF account. If the loan is repaid within three years, the interest rate will be only 1% per annum.

Premature withdrawal rules

Withdrawals can be made once in a financial. This can be up to 50% of the amount deposited in your account. In the case of premature closure, it is allowed if the PPF account holder becomes ill or for higher education of self or children. For this, some charges are deducted.

Documents Required for Public Provident Fund Scheme in Post office (PPF)

To open a Public Provident Fund Account – PPF account at the Post Office, you need the following documents-

• Passport size photograph
• Aadhaar Card, Passport, Driving License, Voter ID (any one for Identity proof)
• Passport, Voter ID, Aadhaar Card, Driving License (Any one for Address Proof)
• Nomination Form- Form E
• PAN Card

Eligibility Criteria

• Indian resident
• Opening of multiple accounts and joint accounts are not allowed
• NRIs are not eligible to open PPF accounts.
• Guardians/Parents can also open PPF accounts for their minor children

How to Open a PPF Account

Individuals can open a PPF account at post offices or through any nationalised banks in India like Bank of Baroda, bank of India, State Bank of India, Canara Bank, Punjab National Bankand major private sector banks like HDFC Bank, Kotak Mahindra, Axis Bank, ICICI Bank, etc.

Popular Tax Saving Investment Schemes

• National Saving Certificate
• Public Provident Fund
• Sukanya Samriddhi Yojana
• National Pension Scheme
• Tax Saver Fixed Deposit
• Unit Linked Insurance Plan
• 5 Year Post Office Time Deposit Account

Due to its tax benefits and guaranteed returns, small savers and many individuals who have a low appetite for risk prefer PPF or Public Provident Fund.

There are many other savings and investment alternatives available to those who want more liquidity and better returns with their investments in the long run. Some of the common alternatives to PPF are NPS, Tax-Saver FDs and ELSS.