All You Need to Know About Public Provident Fund (PPF)

• PPF offers tax deduction up to Rs 1.5 lakh under Section 80C of the Income-tac Act, 1961
• The returns from PPF are tax free in the hands of the investor
• PPF offers loan facility between the third and sixth financial years
• Partial withdrawals are allowed after the seventh year
• The rate of interest is declared every quarter and the scheme is backed by the Indian government

The prospect of saving tax while investing in highly rewarding assets tends to excite a smart investor. In fact, it is a good practice to invest in tax-saving instruments at the start of a fiscal year to build a corpus for protecting your financial health. Investing at least a part of the corpus into a Public Provident Fund (PPF) makes a lot of sense, especially when the market is unstable. Investing in PPF offers tax deduction up to Rs 1.5 lakh under Section 80C of the Income-tax Act, 1961.

What is PPF?

Simply put, PPF is a long-term investment option with enticing interest rates as well as returns on the amount invested. The trio of safety, high returns and tax saving make it a popular option among investors.

The scheme was first made public in India in the year 1968 by the Finance Ministry’s National Savings Institute. At that point, the government aimed at encouraging small savings by providing higher returns.

Some other existing small-saving schemes include Sukanya Samriddhi Yojna (SSY), Senior Citizens Savings Scheme (SCSS) and National Savings Certificate (NSC).

Why Is PPF Popular?

The most important reason behind PPF’s popularity is safety. In fact, this scheme is considered to be one of the safest investment products as the Indian government confirms and guarantees the return in the fund. The returns are declared every quarter. Currently it offers an annual interest rate of 7.1 per cent.

What makes it popular is its tax effectiveness. Not only does it offer tax deduction at the time of investing, but the returns are also not taxable at the time of withdrawal. It enjoys the exempt-exempt-exempt (EEE) status.

Key Aspects to Know About PPF

Although PPF has existed in India since 1968, it has undergone several changes and revisions. As per the latest government-issued changes, an investor needs to deposit at least Rs 500 to open a PPF. The maximum amount to be deposited is Rs 1,50,000 and the minimum continues to be Rs 500 per year. Such a flexible deposit range encourages people from all walks of life to invest in this scheme.

For a typical PPF, the maturity period ends after the fund has completed 15 years from the day when the account was opened. Post maturity, an investor can continue this scheme in blocks of five years, with (or without) any further deposits, in accordance with the prevailing interest rate.

Investors can also avail of the loan facility from the third to the sixth financial year after opening of the PPF account. Part withdrawal is possible from the seventh financial year and is restricted to once per year.

For example, if a PPF was opened on April 1, 2022, a loan facility is allowed between FY25 and FY28. From the seventh financial year, starting April 1, 2029, the person can start withdrawing funds.

In short, PPF allows for a safe and lucrative long-term investment option for investors who are looking for higher yield at minimal risk. Attractive interest rates and the backing of the government are other factors that make this a deal that’s hard to beat!

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