What is a Public Provident Fund?
Public Provident Fund (PPF) is a long-term investment option that is supported by the Indian government. PPF offers high interest rates and tax advantages.
How to open a PPF account?
A PPF account can be opened with any of the leading banks such as SBI, ICICI, Bank of India, Union Bank of India, etc. You can also open a PPF account with the local post office. The minimum deposit for opening a PPF account is only ₹100. You will require documents such as PPF account opening form, identity proof like PAN card or driving license, address proof like telephone/electricity bill and 2 photographs.
How much can I deposit in PPF?
Every year, you need to deposit a minimum of ₹500 in your PPF account. And the maximum deposit amount is ₹100,000 per year. You don't have to deposit the amount at once. You can deposit the amount in up to 12 monthly instalments.
Is there a lock-in period for PPF?
Yes, PPF accounts are for a minimum of 15 years. Early withdrawal is possible, but not in the first 6 years. From the 7th year, you can make annual withdrawals of 50% of the balance at the end of the fourth year.
Example 1: Let's say your PPF account has a balance of ₹50,000 at the end of the fourth year. In the 7th year, you can withdraw ₹25,000. Similarly, if your PPF balance is ₹75,000 at the end of the fifth year you can withdraw ₹37,500 in the 8th year, and so on.
What are the interest rates offered by PPF?
As of October 2014, PPF offers interest of 8.7% p.a. The rate is similar to the ones offered by banks for term deposits of between 2 and 5 years. However, PPFs are a more secure option as compared to bank deposits.
Other important points about PPF
- You can continue your PPF account even after 15 years
- Between the third and sixth year, you can get a loan on your PPF balance
- You can make PPF deposits in the name of your wife and children.
Tax treatment of PPF
PPF investments of up to ₹150,000 per year can be deducted from taxable income. Also, there is no tax payable on any interest earned or an amount withdrawn from PPF.
Example 2: Your annual income is ₹12,00,000 per year. If you invest ₹100,000 in PPF every year, your taxable income will be reduced to ₹11,00,000, thereby reducing your tax liability. Suppose you withdraw ₹10,00,000 from your PPF account after 15 years, you don't have to pay any tax on this amount.
As you can see PPF is a very tax-friendly, safe, and easy-to-maintain investment.
Use our Indian Tax Calculator to see the impact of PPF on your income taxes.
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