With a minimum deposit requirement of Rs. 500 and a maximum of Rs. 1.5 lakh, PPF or Public Provident Fund remains one of the most popular small savings schemes. PPF accounts have a maturity period of 15 years, which can be extended in blocks of five years. Partial withdrawals from PPF are allowed after the account completes a specified number of years. Also, a loan facility is available on PPF accounts. Currently, PPF accounts fetch an interest rate of 7.6 per cent per annum (compounded yearly). They are revised on a quarterly basis.
Here are 10 things you must now before you invest in PPF:
1) Partial withdrawal from PPF accounts are permissible the seventh financial year from the year of opening account, according to India Post’s website – indiapost.gov.in.
2) A depositor can make partial withdrawals, once every year from his or her PPF account.
3) Partial withdrawals from PPF accounts are also tax-free.
4) “PPF deposits fall under the EEE (Exempt, Exempt, Exempt) tax category, which means an investor is not liable to pay tax at all three levels – investment, earning and withdrawal. All payments from PPF shall be exempt from tax under Section 10 (11) and partial withdrawals or premature closures are no exceptions,” says Naveen Wadhwa, DGM at Taxmann.com.
5) Partial withdrawal is restricted to 50 per cent 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.
6) In case the withdrawal is sought from a minor’s account, the guardian has to make a declaration that the money is required for the use/benefit of the minor.
7) If PPF accounts are extended beyond maturity period of 15 years partial withdrawals are allowed once in a year. But the amount of withdrawal during a five-year block period should not exceed 60 per cent of the balance in the account at the commencement of the block period.
8) A PPF subscriber is allowed premature closure of his or her account or the account of a minor of whom he or she is the guardian only after the account has completed five years. It is allowed in special situations like if the amount is required for treatment of a serious ailment or higher education.
9) In other words, “investors shall not be liable to pay any tax on the interest portion or the principal sum received on premature closure of the PPF account”, adds Mr Wadhwa.
10) Loan facility from PPF accounts is available from the third financial year of opening the account, according to the India Post website. The loan can be taken up to 25 per cent 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 facility from PPF accounts are allowed till the end of fifth financial year from the end of the financial year in which initial subscription was made. Loans from PPF accounts can be taken only once a year.