What is PPF -Public Provident Fund? Eligibility & Benefits

Last updated on October 11th, 2023 at 04:07 pm

Public Provident Fund (PPF) is a savings scheme provided by Government of India to encourage the habit of savings among citizens.

PPF is a long term risk free investment option for investment. The maturity term for the scheme is 15 years.

PPF Scheme Features

Public Provident Fund is a savings scheme provided by Government of India.

It can be opened at Post Office and at any of the approved banks.

You can invest maximum of 1.5 lakh in year.

Pblic Provdent Fund Account has a 15 years lock in period. After 15 years you can extend your account in 5 year blocks as long as you want.

Public Provident Fund is EEE rated scheme. Thus there is a tax exemption on interest earned and maturity amount.

Eligibility

Any Indian citizen who are 18 yeares old can open a PPF Account.

Parents can open PPF account on behalf of their minor child. The account is operated by Parents till the child becomes major. But a person can open a PPF account for only one child.

A person who opened the account if becomes Non Resident can continue the PPF account till maturity. But NRI can not open a PPF account.

How to apply for PPF

PPF account can be opened at Post Office, Public Sector Banks and some private sector banks are approved to open a the Account.

You can visit the official website of the respective bank for applying for the account online.

Alternatively you can get the account opening form from the nearest branch of Post Office or Bank.

Fill the account opening request form along with your KYC – Aadhar card, Pan Card and recent Passport size photograph and submit it to the official.

Your account will be opened within 2 days. You can start depositing after account opened.

Investment Limit on PPF

You should invest minimum of Rs. 500 every financial year. You can invest maximum of 1.5 lakh in a financial year.

If amount is not deposited in a financial year, the account becomes discontinued account.

Discontinued account can be revived by paying minimum deposit of Rs. 500 and Default Fee of Rs. 50 (Rs.500+Rs.50=Rs.550) for number of years defaulted.

If you are having second account on behalf of your child, the cumulative investment of both these account should not exceed the 1.5 lakh limit.

There was a limit that you can make only 12 deposits a year. But now you can deposit amount any number of times in a year.

Interest Rate

Interest rate for PPF is fixed by Ministry of Finance on quarterly basis.

The present Interest Rate on PPF is 7.1% (Q3- FY2023-24).

Interest is calculated every month based on the lowest account balance between 5th and last day of every month.

Thus it is desirable to deposit amount in the account before 5th of every month to get higher interest amount.

The interest earned is credited to the account at the end of the financial year.

Tax Benefit

Amount deposited in PPF upto 1.5 lakh can be claimed as a deduction under 80/C of the Income Tax Act.

For Tax deduction cumulative amount invested in your Public Provident Fund account as well as your child’s account can be included.

Maturity Benefit

Public Provident Fund has a tenure of 15 years. You can get the cumulative principle and interest at the end of term.

At the end of 15 years you can withdraw money from your account or you can extend your account in the block of 5 years for as long as you want.

You can earn interest on the maturity value for the extended period also. But you can not make additional deposit during this extended period.

Loan Against PPF

You can avail loan against PPF after the expiry of one year from the end of the FY in which the initial subscription was made.

But Loan has to be taken before expiry of five years from the end of the year in which the initial subscription was made

Also Maximum period for repayment of principle part of loan is 36 months. And the interest part of the loan has to be paid within two months of payment of principle.

A person can avail second loan after the repayment of first loan. But loans can be availed once a financial year.

Maximum loan amount is 25% of account balance at the end of the previous financial year.

Interest on Loan against PPF

If loan is repaid before 36 months, interest rate is 1% above existing PPF interest rate.

If loan is repaid after 36 months, interest rate is 6% above PPF interest rate.

During the loan repayment tenure you would not earn any interest on the deposited amount.

Withdrawal before maturity

As said before the maturity period for the PPF account is 15 years. Upon reaching 15 years total amount in your account is transferred to your account.

But if you are in need of fund before maturity, there is an option for one time partial withdrawal of fund after fifth year excluding the account opening year.

The maximum amount that can be withdrawn is 50% of outstanding balance of at the end of 4th preceding year or at the end of preceding year, whichever is lower.

If account holder is deceased before maturity, no further deposit can be done. The amount already deposited is paid to the Nominee along with interest.

Extension of PPF

After completion of the deposit term of 15 years you will receive the maturity amount by transfer to your account.

But if you want to continue earning interest, you can request for extension of your PPF Account in the blocks of 5 years as long as you want.

You can make additional investment during extended period, you have to submit form 4 with in one year from the maturity to avail this benefit.

If you fail to give request your account will be disabled for further deposits. Any deposit made during extended period without request will be refunded back to your account.

Key Takeaways

Scheme	Public Provident Fund
Eligibility	Indian Resident
Tenure	15 Years
Interest Rate	7.1% (Q4- FY2022-23)
Minimum deposit	Rs. 500 per financial Year
Maximum Deposit	Rs. 1.5 lakh per financial Year
Tax Benefit	t 1.5 lakh under 80/C of IT Act.

Conclusion

PPF is a very good option for the people with low risk appetite. Since amount deposited in PPF is with the Government, there is zero risk involved with the principle deposited.

Even though there is less return when compared to other investment options like Mutual Fund. PPF can be considered as a stable investment option.