Public Provident Fund (PPF) is a financial instrument provided by Nationalized banks / Post Office, which
provides investors with a higher rate of interest than a regular savings
account, until the given maturity date (basically tenure is 15 years, investor can extend 5 years after maturity for one time).
Customer can open PPF account in Nationalized Bank / India Post Office and gets Passbook. Customer can open PPF account on minor's (their children's name) name as well.
There are some constraints on minimum and maximum deposit amount in PPF account per financial year as below:
Minimum Deposit: Rs. 500/- per annum is required to be deposited.
The accounts in which deposits are not made for any reason are treated as discontinued accounts and such accounts cannot be closed before maturity.
The discontinued account can be activated by payment of the minimum deposit of Rs.500/- with default fee of Rs.50/- for each defaulted year.
Maximum Deposit: Rs. 1,00,000/- per annum w.e.f. 1st December 2011. (Rs. 70,000/- per annum upto 30.11.2011.)
The depositor has flexibility and freedom for depositing any amount in a maximum of 12 installments in a financial year.
Period: Tenure of PPF accounts is 15 years. Customer can extend it for period of 5 years after expiration of 15 years for one time only. So in summary, maximum period is 20 years and minimum 15 years.
Interest Rate: PPF returns depends on Interest Rate; it’s also varying from time to time and decided by Government Of India (GOI). Interest rate of PPF is directly controlled by GOI which is good part. Every banks and Post Office has to agree and change their interest rate as per direction given by GOI.
Current Interest Rate is 8.8% (effective from 01-Apr-2012).
Interest is calculated on lowest balance in the PPF account between the close of 5th day and end of month. Calculated interest credited to PPF account at the end of the year. Interest is Compounded annually.
Safety: PPF account is the safest investment under Income tax Act Section 80C. It has no upper limit.
Liquidity: Money deposited in PPF account is partially liquidated as below condition:
Partial withdrawals once every year from PPF account after expiry of five years, from the end of Financial Year, in which the initial deposit was made.
The amount of withdrawal is restricted to 50% of the credit balance at the end of the fourth year immediately preceding the year of withdrawal or the year immediately preceding the year of withdrawal, whichever is lower.
In case of PPF account extended beyond Maturity period partial withdrawals are allowed once in a year with the condition that the amount of withdrawal during a five year block period should not exceed 60% of the balance in the account at the commencement of the block period.
For example- In Sep-1998, account holder deposited 20,000/- so he/she can withdraw 20,000/- after Apr-2004 for once in whole financial year - if PPF account has balance of more than 40,000/-.
In case, the withdrawal is sought from minor's Account, the guardian has to make a declaration that the money is required for the use/benefit of the minor.
Apart from partial withdrawals, Loan facility is also available on PPF account which is as below:
Loan Facility: A PPF account holder can avail of loan facility in the third financial year from the financial year in which the account was opened.
In case, the loan is sought from minor's Account, the guardian has to make a declaration that the money is required for the use/benefit of the minor.
The loan can be taken up to 25% of the amount in the account at the end of the second year immediately preceding the year in which the loan is applied for.
The loan is repayable in lump sum or convenient installments. Where loan is repaid within 36 months, interest is charged at 2% (w.e.f. 1st December 2011) and if it is not repaid within 36 months, the interest at the rate of 6% is charged on the outstanding balance. The interest is to be paid in not more than two installments after the loan amount is fully repaid.
Once the first loan is repaid, second loan can be obtained on same terms. This facility is available till the end of 5th financial year from the end of the financial year in which initial subscription was made.
Tax exemption: Money invested in PPF account is exempted from Income Tax under Income Tax Act Section 80C up to 1 Lac.
Entire deposit in a PPF account is exempt from the Wealth Tax.
Customer can open PPF account in Nationalized Bank / India Post Office and gets Passbook. Customer can open PPF account on minor's (their children's name) name as well.
There are some constraints on minimum and maximum deposit amount in PPF account per financial year as below:
Minimum Deposit: Rs. 500/- per annum is required to be deposited.
The accounts in which deposits are not made for any reason are treated as discontinued accounts and such accounts cannot be closed before maturity.
The discontinued account can be activated by payment of the minimum deposit of Rs.500/- with default fee of Rs.50/- for each defaulted year.
Maximum Deposit: Rs. 1,00,000/- per annum w.e.f. 1st December 2011. (Rs. 70,000/- per annum upto 30.11.2011.)
The depositor has flexibility and freedom for depositing any amount in a maximum of 12 installments in a financial year.
Period: Tenure of PPF accounts is 15 years. Customer can extend it for period of 5 years after expiration of 15 years for one time only. So in summary, maximum period is 20 years and minimum 15 years.
Interest Rate: PPF returns depends on Interest Rate; it’s also varying from time to time and decided by Government Of India (GOI). Interest rate of PPF is directly controlled by GOI which is good part. Every banks and Post Office has to agree and change their interest rate as per direction given by GOI.
Current Interest Rate is 8.8% (effective from 01-Apr-2012).
Interest is calculated on lowest balance in the PPF account between the close of 5th day and end of month. Calculated interest credited to PPF account at the end of the year. Interest is Compounded annually.
Safety: PPF account is the safest investment under Income tax Act Section 80C. It has no upper limit.
Liquidity: Money deposited in PPF account is partially liquidated as below condition:
Partial withdrawals once every year from PPF account after expiry of five years, from the end of Financial Year, in which the initial deposit was made.
The amount of withdrawal is restricted to 50% of the credit balance at the end of the fourth year immediately preceding the year of withdrawal or the year immediately preceding the year of withdrawal, whichever is lower.
In case of PPF account extended beyond Maturity period partial withdrawals are allowed once in a year with the condition that the amount of withdrawal during a five year block period should not exceed 60% of the balance in the account at the commencement of the block period.
For example- In Sep-1998, account holder deposited 20,000/- so he/she can withdraw 20,000/- after Apr-2004 for once in whole financial year - if PPF account has balance of more than 40,000/-.
In case, the withdrawal is sought from minor's Account, the guardian has to make a declaration that the money is required for the use/benefit of the minor.
Apart from partial withdrawals, Loan facility is also available on PPF account which is as below:
Loan Facility: A PPF account holder can avail of loan facility in the third financial year from the financial year in which the account was opened.
In case, the loan is sought from minor's Account, the guardian has to make a declaration that the money is required for the use/benefit of the minor.
The loan can be taken up to 25% of the amount in the account at the end of the second year immediately preceding the year in which the loan is applied for.
The loan is repayable in lump sum or convenient installments. Where loan is repaid within 36 months, interest is charged at 2% (w.e.f. 1st December 2011) and if it is not repaid within 36 months, the interest at the rate of 6% is charged on the outstanding balance. The interest is to be paid in not more than two installments after the loan amount is fully repaid.
Once the first loan is repaid, second loan can be obtained on same terms. This facility is available till the end of 5th financial year from the end of the financial year in which initial subscription was made.
Tax exemption: Money invested in PPF account is exempted from Income Tax under Income Tax Act Section 80C up to 1 Lac.
Entire deposit in a PPF account is exempt from the Wealth Tax.
Tax on Return (Interest): Interest earned by PPF account is tax-free. Entire deposit & interest earned in PPF account is exempt from Wealth Tax
Below are the few list of categorized banks: Click on the bank to find procedure to open PPF account.
Nationalized Banks
- Allahabad Bank
- Andhra Bank
- Bank of Baroda
- Bank of India
- Canara Bank
- Central Bank of India
- Corporation Bank
- Dena Bank
- IDBI Bank
- Indian Bank
- Indian Overseas Bank
- Oriental Bank of Commerce
- Punjab and Sind Bank
- Punjab National Bank
- State Bank of Hyderabad
- State Bank of India (SBI)
- State Bank of Mysore
- State Bank of Patiala
- State Bank of Travancore
- Syndicate Bank
- Union Bank of India
- United Bank of India
- Vijaya Bank
Private Sector Banks
- Axis Bank
- Catholic Syrian Bank
- City Union Bank (CUB)
- Development Credit Bank
- Dhanalakshmi Bank
- Federal Bank
- HDFC Bank
- ICICI Bank
- Indus Ind Bank
- ING Vysya Bank
- J&K Bank
- Karnataka Bank
- Karur Vysya Bank
- Kotak Bank
- Lakshmi Vilas Bank
- Nainital Bank
- South Indian Bank
- Tamilnad Mercantile Bank
- Yes Bank
PPF is the best option to go for when person is planning Tax saving. Income Tax Slab for 2013-2014 is out. Check your category and choose best tax saving option.
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