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 searching for a secure investment alternative to reduce taxes and receive assured profits.

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 The PPF Scheme's returns, when withdrawn, are entirely tax-free.

How To Invest In PPF?
Your PPF account may be opened offline or online. Make sure to review the qualifying requirements prior to applying for a PPF account.
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Open A PPF Account Online
Make sure your internet banking is set up to open a PPF account online using a savings account with a partnering bank.
  1. Use your login information to access your online or mobile banking.
  2. Select the option under "Open a PPF Account".
  3. Choose "self account" if you are establishing the account for yourself. Select the "Child Account" option instead if you are registering a new account as a guardian for a minor.
  4. You must complete the application form. Enter all the necessary information and submit.
  5. You may set up a standing instruction for the bank to regularly deduct the invested money from your account.
  6. Verify the application by entering the OTP sent to your registered email address or cell phone number.
  7. Post verification, you will get a confirmation email after your PPF account has been successfully created.
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Offline PPF Account Opening
By going to the nearby post office or participating bank institution, you may fill out the forms provided. You must send the application form and the necessary supporting papers to apply for a PPF account offline.

Prerequisites For Opening A PPF Account

The investor must fulfil the following requirements in order to create a PPF account:

  • iconbullet A single account can only be opened in an investor's name. They may establish a different account in the case of a minor.
  • iconbullet Must be an Indian citizen.
  • iconbullet Investors must next fill out the application form, attach the required documentation, and send the required money to start the account.
  • iconbullet If you are Non-resident Indians or part of a Hindu Undivided Families case, then you cannot create PPF accounts.

Benefits Of PPF Scheme

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Extension of the Term
Subscribers to PPF have a 15-year holding period after which they may withdraw the tax-exempt funds. The subscribers may also request an extension to get an additional 5 years of active investing. Additionally, they have the option of continuing or stopping their donations.
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Interest Rate
The Central Government modifies the interest rate on PPF accounts every three months. Historically, the PPF interest rate has ranged from 7.6 percent to 8 percent. It often moves a little higher or lower depending on the broader economic circumstances.
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Investment Security
The subscribers benefit from the security of investments in Public Provident Funds since it is a government-backed saving plan. Typically, those who want a set rate of return and are risk-averse choose to invest in public provident funds. Being backed by a governmental guarantee makes the interest generated safer than bank interest.
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Tax Advantages
Under Section 80C of the IT Act of 1961, the Public Provident Fund is eligible for tax advantages. The amount invested in the plan permits income tax deductions of up to Rs 1.5 lakh. The EEE taxation model, which PPF uses, means that the contributions made, the interest generated, and the maturity amount are exempt from taxes.
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Partial Withdrawals
With a 15-year lock-in period, the PPF is a long-term investment plan. However, beginning with the fifth fiscal year after the year the account is created, partial withdrawals are permitted.
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Loan Against PPF Facility
The PPF account holders can borrow money from their PPF account at a reasonable interest rate. The loan benefit is available from the third to the sixth year after account creation. Investors wishing to apply for short-term loans without pledging any collateral assets would benefit from it.
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Calculation Transparency
According to the specified interest rates, the PPF amount is compounded annually. Every quarter, the interest rate for PPF accounts is announced, and the appropriate rate for PPF benefits is the weighted average of each rate. The amount your PPF account earns is determined by the published interest rate and the date on which you made your first PPF investment.
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Pension Tool
If a subscriber chooses to prolong the scheme's duration without choosing to make more payments, PPF might be considered a decent pension plan. Regarding the various pension plans or annuity products, the pension income is taxed under the applicable income tax bracket. However, there is no tax due in the case of PPF. It is thus superior to other pension systems and programmes.

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.

Year

PPF Interest Rate

April 1 2020 to June 30, 2022

7.10%

July 1, 2019 to March 31, 2020

7.90%

October 1, 2018 to June 30, 2019

8%

January 1, 2018 to September 30, 2018

7.60%

July 1, 2017 to September 30, 2017

7.80%

April 1, 2017 to June 30, 2017

7.90%

October 1, 2016 to March 31, 2017

8%

April 1, 2016 to September 30, 2016

8.10%

April 1, 2014 to March 31, 2016

8.70%

April 1, 2013 to March 31, 2014

8.70%

April 1, 2012 to March 31, 2013

8.80%

December 1, 2011 to March 31, 2012

8.60%

April 1, 2011 to November 30, 2011

8%

March 1, 2003 to March 31, 2011

8%

April 1, 2002 to February 28, 2003

9%

March 1, 2002 to March 31, 2002

9%

March 1, 2001 to February 28, 2002

9.50%

January 15, 2000 to February 28, 2001

11%

April 1, 1999 to January 14, 2000

12%

1988 – 89

12%

1987 – 88

12%

1986 – 87

10%

1985 – 86

9.50%

1984 – 85

9%

1983 – 84

8.50%

1982 – 83

8.50%

1981 – 82

8%

1980 – 81

7.50%

1979 – 80

7.50%

1978 – 79

7.50%

1977 – 78

7%

1976 – 77

7%

1975 – 76

7%

1974 – 75

5.80%

1973 – 74

5.30%

1972 – 73

5%

1971 – 72

5%

1970 – 71

5%

1969 – 70

4.80%

1968 – 69

4.80%

Source: https://www.nsiindia.gov.in/InternalPage.aspx?Id_Pk=79

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 To Use PPF Calculator?

The list below highlights the advantages of utilising the PPF calculator.

  • iconbullet You may save by paying a significant amount of tax by using this calculator.
  • iconbullet Users of this tool may get a clear notion of how much interest they can expect to earn by investing a certain sum of money.
  • iconbullet Additionally, it provides an estimate of the total investment for the fiscal year.
  • iconbullet We often find it difficult to choose the maturity time of the investment, but using the PPF calculator makes this issue simple to resolve.
  • iconbullet It is crucial to provide the tool with the deposited quantity and the kind of deposit, such as fixed or variable, to guarantee that the user may get an accurate result.

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.

PPF Withdrawal Rules

PPF plans will mature after 15 years. Investors have three alternatives when this term comes to an end. They may choose to fully withdraw their money if they want. The entire amount will get credited to their savings account. Alternatively, they might decide to continue with their plan while making no PPF contributions. The interest will accumulate in this scenario up until the account is closed. Investors have the option of extending their accounts with donations. This extension may last for five years. One may extend their PPF account as many times as they'd like during their lifetime.

Before the PPF matures, investors may also partly withdraw some of their contributions. On partial withdrawals, there are, nevertheless, specific guidelines. Premature withdrawals are only permitted once five years have passed after the year's conclusion. The investor cannot, however, take a full withdrawal. The maximum amount that may be withdrawn is limited to 50% of the PPF balance at the end of the fourth year or 50% of the balance at the end of the previous year, whichever is smaller.

Investors also have the option of early PPF account closure. But this is permitted only under the following circumstances:

  • iconbullet Only when the account holder, their spouse, or their dependent children have a condition that requires life-saving treatment will they be allowed premature closure. They must provide the required documentation to support their claim.
  • iconbullet Only five years after the account's inception can it be closed prematurely.
  • iconbullet The account may be prematurely cancelled if the account holder is changing their residence status.
  • iconbullet The account may be terminated if the account holder requires money for further study. However, he or she must provide the necessary paperwork.
  • iconbullet Premature closures are subject to a 1% interest charge.

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.

Frequently Asked Questions on Public Provident Fund

A PPF Account may be opened at a bank or a post office. If you already have a bank account, you may quickly create a PPF account online. However, you may also go to a branch if you prefer the conventional method of banking.
A PPF account may be opened by any Indian citizen, either in their own name or on behalf of a minor. Additionally, a person can only have one account in his name.
PPF tax benefits¹ come under section 80C of the Income-tax Act of 1961. This gives a deduction of up to Rs 1.5 lakh for investments made in each fiscal year.
Bring your PPF passbook and visit the branch of your current bank or post office. You must submit a transfer application request. You must also provide the complete address of the post office or bank branch where you desire to move your PPF account on the application form.
Normally, a PPF account is closed permanently only after the account holder's death. However, the owner may request an early closure by sending a simple form that has been properly filled out and formally signed by the account holder. The account in such cases can only be closed if the holder has genuine reasons to do so.
You must link your PPF account to your bank savings account and enrol for internet banking in order to see the balance of your PPF account online. The savings bank account and PPF account may need to be from the same bank to connect the accounts.
A PPF account passbook is provided when you establish a PPF account at the post office. Your PPF account number, transactions that have been done in your account, the amount of your PPF account, and other information are all included in the passbook.
It is advantageous to have a PPF account with banks or post offices. The elements of the PPF plan are the same whether a PPF account is created in a bank or post office.
Remember that the PPF account cannot be cancelled before maturity unless certain conditions are met. Visit the bank branch or post office where the PPF account is housed if you want to cancel the account. Along with the original passbook, a formal application must be submitted in order to withdraw the funds and end the account.
Under "My Deposits," you may see information about your PPF account, including the amount. Check PPF balance by SMS or missed call: To check your balance, place a missed call to 9223766666 or send an SMS with the keyword "BAL" to the same number.
PPF accounts may be extended with new deposits once they mature. A block of five years may be added to the account. Once this choice has been made, the person cannot subsequently retract their desire.
Only once the PPF programme has matured, or after 15 years, may an account holder withdraw the whole amount of their account. Partial PPF withdrawals are permitted starting in the seventh year after the account's creation in case of a financial necessity.
If your savings and PPF accounts are both with the same bank, you may deposit money online via a third-party transfer or a funds transfer (if the accounts are in different banks). By login into your NetBanking account, you must first add your PPF account as a beneficiary before you can make an online deposit.
View your PPF account under the logged-in area's "My Accounts" section. Online money transfers from the associated Savings Bank Account. View and print online mini and comprehensive statements.
The actual tenure of a PPF account, which serves as the minimum lock-in period, is 15 years.
You must submit a written request to the bank or post office branch where your PPF account is located. Post payment of the penalty and submission of the request will your PPF account be reactivated.
The first step is to get Form F from the bank or post office where the PPF account was opened. All you need to do is correctly complete this form and turn it into the relevant bank or post office. After the form has been submitted, the nomination may be amended.
Both the interest earned on the PPF account investment and the maturity sum are tax-free for all PPF account holders.
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    ¹ Tax benefits are subject to changes in tax laws. Kindly consult your financial advisor for more details.
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