Today when the interest rates have fallen from 14% in nineties to just 9% per annum coupled with falling value of rupee and skyrocketing inflation the public is in dilemma as to where to invest their hard earned moneys. The realistic yield is Zero % if rupee depreciation and inflation is accounted for due to diminishing purchasing power of the rupee. Moreover every investment carries market risks and no investment can be termed as having Zero Market Risk as clarified by wqaindia. However we can have investments with low market risks. Even if compared with Bank’s fixed deposits the PPF, one of the most preferred, popular taxes saving investment, is an investment with near zero risk. To know the basic facts only recently I had to deliver a lecture where the participants asked certain questions which are answered below a ready reckon-er guide for the readers of this site.
Where to open the PPF account?
PPF accounts can be opened in any post office or even in authorized branches of major banks. The investor has to comply with KYC guidelines of RBI. New PPF account can be opened with minimum contribution of Rs.500.
What is applicable rate of interest?
At present interest at the rate of 8.7% per annum is payable yearly on the monthly rests and is applied on last day of the financial year that is 31st March every year. Under the PPF Act Government can change the rate of interest for every financial year with a minimum rate of 6% p.a. to maximum of 12% p.a. The PPF deposits are invested in the Government Bonds and interest rate is fixed 0.25% above the yield on ten year Government Bonds.
How interest is compounded and calculated?
The interest is compounded yearly on the PPF account. Simply speaking the interest added on 31st March of every year qualifies for interest for the next financial year from 1st April to 31st March next. As regards interest for your contribution make it sure that you deposit your contribution on or before 5th of every month to get qualified for interest for the month in which it is deposited. If you deposit by Cheque or any other instrument you will get the benefit only if it gets realized and credited in your PPF account on or before 5th of the months.
Are there any tax benefits for PPF Contributions?
Yes, all your contributions to PPF account are eligible for tax deduction u/s 80 C within overall ceiling of Rs.100000-00 or as amended and proposed the financial budgets every year.
How much can be invested in PPF:
The account holder has to deposit a minimum amount of Rs.500-00 per financial year with a maximum limit of Rs.100000-00 per financial year. Previously the maximum limit was Rs.70000-00 and Government can change it through Budget Proposals. You can deposit only once in a month that is maximum of 12 contributions in a financial year. If you have another account in the name of your minor son or daughter then you will get tax benefit within ceiling of Rs.100000. Penalty of Rs.50-00 is imposed if your account becomes irregular for not depositing money in any one financial year.
How many accounts can be opened by an Individual?
No individual can open more than one PPF account except that individuals are allowed to open one account each in the name of their sons or daughters with the condition that overall rebate u/s 80C will not go beyond Rs.100000-00 inclusive of all other investments like LIC, PF etc.
When will I get my PPF investment back?
PPF account is initially opened for tenure of 15 years which can be extended up to 25 years by applying for extension for one or more blocks of 5 years. PPF investor can also withdraw money every financial year with the stipulation that withdrawal is permissible every year from the 7th financial year of the date of opening of the account. The amount of withdrawal will not exceed 50% of the balance at the end of the 4th proceeding year or balance at the end of the financial year immediately proceeding the year of the withdrawal, whichever is lower, and amount of loan taken if any will be deducted from such withdrawal.
What is the specialty of PPF account?
PPF account has complete immunity against attachment under a decree or order of court of law as Judgment Debtor with the only exception that it can be attached by the Income Tax and Estate Duty authorities.
Can I raise a loan against PPF balance in emergency?
Loan is allowed after the end of the 3rd financial year. For example if you have opened an account on 1st of January 2014 then 3rd financial year will be completed on 31st March,2017 and you can get loan up to 25% of balance as at 31st March 2017 and if you take loan subsequently also then the previous loan will have to be adjusted first. The loan carries interest @2% over and above the rate of interest on PPF and can be repaid in lump sum or installments of not more than 36 months.
What to do if PPF account holder expires?
In the event of unfortunate death of the PPF account holder, the entire balance along with applicable interest up to previous month is payable to the nominees of legal heirs of the deceased even before completing 15 years tenure but the nominee or the legal heirs are not allowed to continue with PPF account.
As per latest news the State Bank of India has allowed online deposit of PPF contributions through NEFT in addition to existing facility of getting the PPF account transferred in any Post Office anywhere in India so as if you change the location due to any reason what so ever, you can continue with your PPF contributions easily.
Author’s Opinion: PPF is one of the best social security investments in India in addition to NPS, National Pension Scheme introduced recently. If you have any question you either put your question in the Ask Experts >> Ask a Question on our site or discuss with me by opting for our 10 minutes complimentary consultation free of cost and you can request for discussion here.