FAQ on Tax Savings through PPF (Public Provident Fund)

One of the popular, preferred, and prominent tax saving investments is PPF – Public Provident Fund. We all know about PPF. But do we know all about PPF?

Let us discuss in detail about PPF in this article and understand it comprehensively and completely.

1. Where to open the PPF account?

PPF accounts can be opened by a resident individual in a post office or in selected bank branches. The regular KYC documents need to be submitted for opening a PPF account with a minimum investment of Rs.500.

2. What is the interest rate?

PPF interest rate is notified every quarter. Present interest rate is 7.1%

3. How is the interest calculated?

For the balance amount in your PPF account the interest is compounded annually. However, the interest is calculated every month on the basis of lowest balance between 1st and 5th date of the said month. If your contribution to the PPF account is credited on or before 5th of that month, then that contribution will bear interest for that month too. However if you invest after 5th of the month, you will not get interest for that month.

4. What is the tax benefit?

Contributions of upto Rs. 1.5 Lakh p.a. in PPF will be eligible for deduction under Section 80C of Income Tax. Investments made by a person into PPF Account of Spouse or Children will also be eligible for deduction u/s 80C, however the aggregate annual deduction u/s 80C cannot exceed Rs. 1.5 Lakh p.a. Interest received on PPF every year, is tax exempt. Further amount withdrawn/partially withdrawn from PPF including interest accumulated, is also tax exempt. PPF is an EEE (Exempt-Exempt-Exempt) Category Investment Vehicle.

5. What is the required minimum and maximum deposit to maintain PPF Account?

The minimum amount needed to be invested is Rs. 500 p.a. The maximum amount of investment allowed is Rs.1.5 Lakh p.a. Not making the minimum investment in a year will attract a penalty of Rs. 50. Investments can be made in lump sum or in a maximum of 12 instalments.

6. What is the Tenure or Maturity Period of PPF Account?

PPF is a long term investment, to encourage habit of savings consistently. You cannot close a PPF Account before its Maturity Period i.e. 15 financial years from the end of financial year in which you opened the account.

7. What is the lock-in period of PPF Account?

You cannot withdraw your funds for a minimum lock-in period of 5 financial years from the end of financial year in which you opened the account. However you are eligible for loan after completion of 3rd financial year from the end of financial year in which you opened the account. .

8. Can I take loan against PPF?

Yes, you can take a loan against your PPF account between the 3rd and 5th year. The loan amount can be a maximum of 25% of the 2nd year immediately preceding the loan application year.

9. Can I make partial withdrawal from PPF in case of emergency?

If account holders are in need of funds, and wish to withdraw before 15 years, the scheme permits partial withdrawals from year 6 i.e. on completing 5 financial years from the end of financial year in which you opened the account. An account holder can withdraw prematurely, up to a maximum of 50% of the amount that is in the account at the end of the 4th year (preceding the year in which the amount is withdrawn or at the end of the preceding year, whichever is lower). Further, withdrawals can be made only once in a financial year.

10. In case of my death, can my nominee withdraw PPF Balance prematurely?

Yes, in case of death, your nominee will be allowed to withdraw full PPF Balance prematurely.