Business strategy

Interest, Eligibility, How to Open PPF Account, Tax Benefits

The Public Provident Fund or PPF is one of the most popular, long term investment options in India. It is a retirement savings policy provided by the Indian government to create long term wealth for investors post retirement. Introduced in 1968 by the Ministry of Finance’s National Savings Institute, PPF has become a powerful tool for Indians wherein they can enjoy tax benefits. The scheme has emerged as one of the most sought-after investment options due to the safety, returns and tax benefits it offers.

This government-backed scheme is a form of a small savings policy and ensures to provide assured returns at the time of its maturity, which makes it so loved among investors.

Public Provident Fund is flexible in nature in terms of investment as individuals can invest as low as Rs 500 per year into their accounts, and also as high as Rs 1,50,000 per year. This is also one of the reasons why Indians are so keen to invest in this fund.

What are the benefits of Personal Provident Fund?

Apart from being flexible in nature, PPF comes with other benefits too. First of all, it is a 100 per cent risk free investment as the fund is backed by the Government of India, and it does not move in line with stock exchange rates that tend to change from day to day. It also acts as a mode for an account holder to take a loan in case of an emergency at a nominal interest rate of only 1 per cent interest rate per annum. However, this facility is available only from the third to sixth year of account opening of PPF. After six years, the account holder can partially withdraw money from PPF.

The investor can extend the tenure of his or her PPF account for as many years as needed, despite the initial tenure of PPF being 15 years. This can be done in blocks of five years by submitting a PPF Account Extension Form.

Moreover, since it is a long term investment plan, PPF investors are eligible for interest on interest, which yields more returns.

What are the tax benefits of PPF?

The Public Provident Fund is one of the very few investment options that enjoy the perks of the government’s triple tax exemptions, also known as the exempt-exempt-exempt (EEE) status. This means that the PPF account holder is eligible to get tax exemptions thrice, that is, during the time of investment, accrual, and withdrawal. This means that it offers up to Rs 1.5 lakh deduction on investment made per annum. Under Section 80C of the Income-tax Act, 1961, the interest rate earned each year is also exempt from any levy and one can also withdraw the matured amount without being taxed.

The interest rate of PPF, fixed at 7.1 per cent currently, is one of the highest in terms of fixed income products which have a backing from the government. 

How to open PPF account online

PPF accounts can be opened online or one can also visit their banks to set up the account. To open a PPF account online, one must first log in to the net banking portal of their banks. There, he or she should find an option where it allows to open a PPF account. Thereafter, one needs to fill in all details, including those of bank and nominee, and verify them to proceed further. Once this is done, the account holder must enter the amount he or she wants to invest in the fund. Depending upon the bank, either an OTP would be sent or a transaction password would be asked from the person to complete the creation of the PPF account. 

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