PPF-Public Provident Fund: Things You Need to Know!

In order to utilise modest savings in the form of investments with a return, the Public Provident Fund (PPF) was established in India in 1968. PPF is also an investment instrument that allows one to accumulate retirement funds while reducing yearly taxes. A PPF account can be opened by anyone search

What Is A PPF Account?

A PPF account is an investment option that provides fixed returns backed by the government and is considered relatively safe. The National Savings Institute created the Public Provident Fund, a post office savings scheme. Nevertheless, some private and nationalised banks are permitted to take PPF investments. The government regulates it; hence the returns are assured.

The PPF Interest rate for 2022-23 is 7.1 percent. Every year on March 31, the interest is paid. However, the interest is calculated on the minimum PPF balance between the fifth and the thirty-first of each month. A 15-year lock-in is included with the Public Provident Fund. The plan may be extended further in 5-year increments. The Public Provident Fund is open to all Indian citizens. HUFs and NRIs cannot, however, establish a PPF account. Additionally, PPF enables investors to borrow money against their PPF assets which is accessible between the third and fifth year.

Each investor can open only one PPF account. A lump sum or twelve separate instalments are also options for investors. The minimum and maximum investments are Rs 500 and Rs 1,50,000, respectively. To keep their PPF account active, investors must make at least a Rs 500 minimum investment. There is a penalty of Rs. 50 if investors fail to keep the account active and INR 500 for that particular year to reactivate their account; otherwise, their account will be terminated. Under Section 80C of the Income Tax Act, investments in Public Provident Fund up to Rs 1,50,000 are eligible for a tax deduction. The PPF Scheme's returns, when withdrawn, are entirely tax-free.

PPF interest rates FY 2022

Every three months, the Ministry of Finance releases the PPF Scheme interest rates. PPF interest rates are at 7.10 percent for this quarter. The Finance Ministry did not alter the rate from the previous quarter. Every year on March 31st, interest payments are paid. The PPF interest rate announcements were made annually or as needed before 2017. However, the interest rates have been disclosed every three months since April 2017. Based on the balance of the PPF account, the interest rate is calculated. The minimum amount in an investor's account between the fifth and final day of each month is used to compute the interest on the PPF Scheme.

Therefore, it is preferable to make PPF deposits by the fifth of the given month, if not earlier. As a result, the investor will be able to collect interest on their investment for the full month. A maximum of 12 monthly instalments may be made into a PPF account in a single payment.

How Is PPF Rate Of Interest Calculated?

Formula to compute the deposited amount, interest, etc. has been given below:

F = P [({(1+i) ^n}-1)/i]

This formula represents the following variables –

F – Maturity of PPF I – Rate of interest P – Annual instalments N – Total number of years

Between the fifth and the end of each month, interest is computed on the minimum amount in PPF accounts. This indicates that you will get the interest for the current month on any new deposits made before the fifth of the month. If not, interest is computed using the prior balance.

A PPF subscriber should submit contributions or lump payments before the fifth of every month in order to maximise interest. The minimum and maximum amounts that may be placed into a PPF account each year are Rs 500 and Rs 1.5 lakh, respectively. Also, in the case of a minor account, a maximum of ₹1.5lakh can be invested by the parent or guardian in the minor’s name. It's also important to know that payments into PPF accounts may be made in a single payment or up to 12 instalments annually.

How Does PPF Work?

Investments in the Public Provident Fund come under the Exempt - Exempt - Exempt classification. It follows that all of the investments, interest and redemptions are tax-free. Under Section 80C of the Income Tax Act, investments up to Rs 1,50,000 a year are eligible for tax deductions. When submitting their income tax returns, investors may take advantage of tax benefits1 by disclosing their PPF investments.

PPF interest payments are made annually on March 31. Additionally, all the income from PPF accounts is tax-deductible. The maturity amount at the conclusion of the 15-year term is also entirely tax-free. PPF is a great alternative for investors wishing to reduce their income tax as a result. Along with assured and risk-free earnings, the PPF account also offers capital protection.

How Much To Invest In PPF?

PPF permits investments starting at Rs 500 and going up to Rs 1.5 lakh every fiscal year. A maximum of 12 instalments or a lump payment may be used to make investments.

How To Maximise PPF Returns?

If you want to maximise PPF returns rthe invest prior to the fifth of every month. The lowest balance between the fifth and the final day of each month is used to compute PPF interest. So, if you deposit Rs 10,000 on January 2 and another Rs 10,000 on January 15, for example, the interest will only be computed on the first Rs 10,000 and not the second Rs 20,000.

Regular Income From PPF Account After Maturity

The maturity term, commonly known as the account's validity duration, is 15 years. The maturity amount is tax-free in addition to the PPF investment. When your PPF account reaches maturity, you have two choices: you may either take the whole amount and close the account, or you can prolong it for a further five years with or without making additional contributions. It is possible to extend the agreement in five-year increments indefinitely.