7 things you must know about PPF

Public Provident Fund is an important savings instrument in India. It is the go-to investment for many individuals because of its tax advantages. But before investing in PPF account, you must evaluate whether it is suitable for you.

Following are the 7 things you should know about PPF:

1. It is an Exempt-Exempt-Exempt (EEE) form of investment:
The tax on an investment is considered at 3 different times:
a. On investment
b. When the investment earns income:
c. On maturity

Public Provident Fund has tax benefits at all three stages.
• Investment in PPF scheme gets a tax deduction up to Rs. 1,50,000 under Section 80C of the Income Tax Act
• Interest earned on PPF is exempt. Exempt incomes are not considered as taxable income of the individual.
• Withdrawals from PPF account after maturity are exempt as well.

This makes PPF an excellent investment since the incomes do not incur any tax. The interest on the PPF account is compounded, and hence a sizeable investment over a period of time can earn a substantial sum. This amount is wholly exempt which provides more funds in your hands, especially if you avail it at retirement.

2. The PPF lock in period is 15 years:
The minimum lock in period for PPF account is 15 years. After the period of 15 years, you can renew the account for 5 years at a time. There is no restriction on the number of times the account is renewed.

3. The minimum deposit every year is Rs. 500/-
To keep the PPF account active, a minimum amount of Rs. 500 must be deposited. You can deposit a maximum of Rs. 1.5 lakhs every year in a maximum of 12 installments.

4. You can take a loan from your PPF balance:
You can avail loan facility from your PPF account after the third year up to the fifth financial year. For example, if you opened your account in 2010, the lock in period would start from 31st March 2011. You will be eligible for a loan on 31st March 2014, for the next 3 financial years. The interest on this loan is 2% above the PPF interest rate.

5. PPF allows partial withdrawal of up to 50%:
When funds are needed, you can withdraw up to 50% of the balance in PPF account. This facility becomes available after the 7th financial year.

6. The PPF interest rate depends on the Government bond rate:
The Government declares the PPF interest rate every quarter.

7. PPF is backed by Government of India and cannot be attached:
PPF scheme is fully guaranteed by the Central Government. The courts cannot attach it in proceedings. However, the Government can attach PPF account to recover taxes.


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