What is the Public Provident Fund (PPF)

The Public Provident Fund, also known as PPF, is one of the most popular investment options among service-class people in India. There are many reasons behind its popularity, as the return you get on your investment is guaranteed, you get tax benefits on the amount invested, and whatever return you get on this investment remains tax-free.

Read: What is the Employees Provident Fund 

These factors contribute to its popularity. However, there are many aspects of tax-saving investments that are not known to everyone. But in spite of this fact, millions of Indians use these investments to achieve long-term financial objectives.

What is The Public Provident Fund?

The Public Provident Fund is a government-backed savings initiative with a number of advantages. It is opted for by people to achieve a long-term investment goal. It has 15 years of lock-in. Due to its long lock-in period, it provides higher returns than many other alternatives, like a fixed deposit. PPF investments are very helpful in reducing your tax liability.

The amount you invest in PPF, the interest you receive, and the maturity amount are all exempt from taxes because they come under the EEE (Exempt-Exempt-Exempt) tax classification. In the beginning, the PPF plan was operated by the post office. But now many private and nationalised banks accept this investment. It has government support. Returns are thus guaranteed. The PPF Interest Rate for the current quarter (FY 2022-23) is 7.10% p.a. 

The interest is paid on March 31 of each year. However, the interest generated on PPF investments is calculated on a monthly basis. The minimum PPF balance from the fifth to the thirty-first day of every month is needed to be used for interest calculations. For the Public Provident Fund, the lock-in term is 15 years. The program may be continued for an additional five years.

Eligibility for Opening a PPF Account:

Indian nationals are eligible to open PPF accounts. However, PPF accounts cannot be opened by NRI Indians or Hindu Undivided Families (HUFs). Each person is only permitted to have one PPF account. They may yet open a different account on behalf of a minor. A PPF account can be started for 100 Indian rupees. It is to be noted that annually, the employees are required to make a minimum investment of INR 500. 

The maximum annual investment can be made, nevertheless, at INR 1,50,000. The investors get no interest on the investment made, excluding INR 1,50,000. Deposits have to be made annually or in a maximum of 12 installments per year. You should make at least one deposit a year for the whole tenure of 15 years to keep the PPF account operational.

Benefits Of Opening PPF Account:

1- Taxation Benefit

PPF is mainly popular for its tax benefit, as it offers the biggest tax advantage. The amount invested in PPF falls under the Exempt-Exempt-Exempt (EEE) category of the taxation policy. 

According to Section 80C, a person’s PPF investments are exempt from taxation for the applicable financial year. Additionally, neither the total amount accumulated nor the interest gained on PPF deposits are subject to taxation.

2- Loan Against PPF:

A PPF account holder can borrow money against the balance of his PPF account in case of an emergency. However, the loan cannot be taken before five years have passed since the end of the fiscal year in which the initial subscription was made. 

25% of the PPF balance at the end of the second year, or the year before the year for which the loan is being used, is the maximum loan amount that can be obtained.

3- PPF Withdrawal

You are then permitted to withdraw the entire maturity sum from your PPF account whenever it reaches maturity. The whole invested amount with interest is deposited into your bank account. 

If you require partial payments, You are allowed to prematurely withdraw up to 50% of the total amount in your account at the end of the fourth year. This facility is available for only one full term.

How to Open PPF Account:

You can proceed with the PPF account opening online as well as offline. Make sure to review the qualifying requirements before submitting an application for a PPF account.

Open Online PPF Account.

Make sure your Internet banking is set up for opening a PPF account online using your savings account with an Internet-enabled bank. Then follow the below-given steps:

1. Log in to your online or mobile banking using your login credentials.
2. Go to “Open a PPF Account” and choose your option.
3. If you are opening the account for yourself, select “self account”.
4. But if you are creating a new account as a guardian for a minor, you should select the ‘Minor Account’ option.
5. You must fill out an application form. You are required to enter your name, address, date of birth, PAN details, Aadhaar number, annual investment amount, and any other relevant information.
6. You can create a standing instruction to order the bank to periodically deduct the invested funds from your account.
7. To verify the application, use the OTP that was issued to your registered email address or mobile number.
8. Once your PPf account has been properly created, you will receive a confirmation email.

Open Offline PPF Account.

If you want to apply offline for opening your PPF account, go personally to the Post Office or any authorized bank that is most convenient for you. You must collect the application form and, after filling it up, attach the necessary supporting documents to apply for a PPF account offline.

1. Purchase an application form either online or at your neighborhood post office.
2. Fill out the form and mail it in with the required KYC documentation and a passport-size photo.
3. Deposit the initial amount needed to open a post office PPF account.
4. Following the approval of your application, you will be sent a passbook for the newly opened PPF account.

Required Documents For Opening PPF Account:

1. Application for the PPF Scheme
2. Identification proof (such as an Aadhaar card or PAN card)
3. Address confirmation (such as a passport or Aadhaar card)
4. Signature Proof

After completing the necessary formalities regarding producing the documents, the investor must deposit the amount to be invested to start a PPF account.

Procedure for Transferring PPF Account

Your PPF account can be transferred from one bank or post office to another, or from a post office to a bank. The actions are detailed below:

• For transferring the account from one bank or post office to another, first of all, you need to go to the bank or post office where you have your current PPF account.
• Here at the bank or post office, you should obtain the transfer application form for the transfer of a PPF account and fill out the form with the required information.
• As soon as your application is processed, it will be sent to the new branch of the bank where you want your account to be transferred by the branch representative. He will also send the application to the new branch along with the nomination form, a certified copy of the current account, a specimen signature, and a check or DD for the PPF account.
• When all the formalities are completed, the new branch will check your application and supporting documentation for the opening of a new PPF account and the passbook for the current PPF account. While transferring the PPF account, you have the option to change the nominee.
• After the processing of the application for the transfer of the account is completed, your PPF account will be transferred to the new branch.

Conclusion:

In the past, the popularity of the Public Provident Fund in India has been fueled by its combination of assured returns and tax-saving advantages. The PPF account is still one of the most widely used tax-saving investment choices in India, despite the fact that the ongoing decrease in interest rates has prompted many to look for alternative investments.