Public Provident Fund (PPF) is regarded as one of the most favored investment options, especially for individuals seeking long-term and secure investment avenues. The advantages of tax savings and tax-exempt returns make PPF an excellent option for achieving one’s long-term financial objectives. It is, however, important to understand several key aspects of the PPF scheme prior to making an investment.
Features
The PPF scheme provides tax deductions of up to Rs 1.5 lakh under Section 80C of the Income Tax Act. Additionally, the returns generated from this investment are also exempt from taxation. It is important to note that there is a mandatory lock-in period of 15 years, during which withdrawals are not permitted. However, partial withdrawals is allowed after the completion of six years under exceptional circumstances, such as for meeting higher education expenses or in the event of a medical emergency.
An individual is permitted to maintain only one PPF account, and eligibility for the scheme is restricted to Indian citizens. In the context of PPF, the initial capital, accrued interest, and the total returns upon maturity are all free from tax liabilities. The investment can commence with a minimum annual contribution of Rs 500, while the maximum annual investment is limited to Rs 1.5 lakh.
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“Failure to meet the minimum investment requirement in a given year may result in the account becoming inactive. The interest rate applicable to PPF is determined at the beginning of each quarter and may be revised periodically. Currently, PPF offers an interest rate of 7.1% per annum, which is compounded annually,” informs Adhil Shetty, CEO, BankBazaar.com.
Also Read: How many fixed deposit accounts should you open? A guide to maximizing your savings
Interest Rates
For individuals in the 30% tax bracket, investing in PPF may yield higher returns than a fixed deposit at a bank. Currently, most banks provide interest rates between 6% and 8%. However, the interest earned on these deposits is subject to taxation according to the applicable slab rate.
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