What is Public Provident Fund

Exempt, Exempt, and Exempt (EEE) is the straightforward way to describe the Public Provident Fund (PPF), as it offers significant tax benefits to subscribers under Section 80C. This popular long-term investment plan, introduced by the Government of India, ensures tax-free returns and financial security with a reasonable interest rate.

Subscribers of the PPF plan receive a guaranteed return on their deposit each year. While the interest rate used to be adjusted annually, it is now updated quarterly to remain competitive in the market, providing an opportunity for substantial gains.

Here’s a tip: If you’re considering opening a PPF account, ensure you deposit money by the fifth of each month. The interest on PPF deposits is calculated from the fifth to the last day of the month, allowing you to maximize your investment by depositing funds early.

How to Open a PPF Account

To open a PPF account, choose any approved Bank/Post Office and submit the following documents:

PPF Form A (available at banks or Indian Post Offices).
Any ID proof (Aadhaar Card, PAN Card, Driving License, Passport, Voter ID).
Address proof (Aadhaar Card, Telephone Bill, Ration Card, Electricity Bill).
Two current passport-size photographs.
A signed cheque or pay-in-slip in favor of your PPF account.
For minors, a birth certificate as age proof.
Remember: All documents must be self-attested, and originals should be brought along while opening the account.

Eligibility for Opening a PPF Account

Only Indian nationals can open a PPF account.
A person can have only one PPF account.
Minors’ accounts can be opened with age proof documentation.
Accounts opened in India can be maintained for a maximum of 15 years without extension.
Hindu United Families cannot open PPF accounts after May 13, 2005.

PPF Interest Rate

The government sets the PPF interest rate quarterly based on market rates. The current rate is 7.1% p.a., compounded yearly. Despite potential fluctuations, PPF interest rates generally outperform inflation and most fixed deposits.

Key Considerations Before Opening a PPF Account

Only one PPF account is allowed under Indian law.
The minimum initial deposit is Rs. 500.
NRIs are ineligible to open PPF accounts.
Regular deposits of Rs. 500 per financial year are required to prevent account dormancy.
Inactive accounts can be revived by submitting a written application with arrears payment and penalties.

List of Banks Offering PPF Accounts

PPF accounts are available at select banks, including:

HDFC Bank
State Bank of India and subsidiaries
Punjab National Bank
Axis Bank
ICICI Bank
Canara Bank
Indian Bank
Bank of India
Bank of Baroda
Central Bank of India
Union Bank of India
Indian Overseas Bank

Managing Inactive PPF Accounts

To avoid dormancy, a minimum deposit of ₹500 per financial year is required. Inactive accounts can still earn interest until maturity, but borrowing against them is not permitted. Reactivation involves submitting a written application, arrears payment of Rs. 500, and a penalty of Rs. 50 per defaulted year.

Tax Benefits of PPF

The principle amount invested in a PPF as an account is exempt from income tax. Under section 80C of the Income Tax Act of 1961, the full investment value is eligible for a tax remission. It is important to remember that the maximum amount of principal that can be invested in a single financial year is Rs. 1.5 lakh.

Additionally excluded from all tax computations is the total interest earned on a PPF investment.

As a result, there is no taxation on the whole amount redeemed from a PPF account after it matures. Many Indian investors find the public provident fund program appealing because of this policy.

Loan Benefits on PPF

One advantage of public provident funds is the ability to borrow against the amount invested. But the loan will only be approved if it is taken out at any point between the third year’s beginning and the sixth year’s finish from the account’s activation date.
Such loans against PPF have a maximum 36-month term. The maximum amount that can be claimed for this purpose is 25% of the entire amount that is accessible in the account.