What is Public Provident Fund and how does PPF work?

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The Public Provident Fund, similar to small saving programs such as the Senior Citizens Savings Scheme (SCSS), Sukanya Samriddhi Scheme, and the National Savings Certificate (NSC), was introduced by the government to promote small savings and offer dividends on such savings. Because the PPF plan falls within the Exempt-Exempt-Exempt (EEE) category of tax policy, the principal amount, maturity amount, and interest generated are all tax-free. If you aren’t sure how PPF works then keep reading!

What is PPF?

Public Provident Fund

The PPF account, also known as the Public Provident Fund plan, is a hugely successful saving and investment option, owing to its mix of security, returns, and tax benefits. The National Savings Institute of the Finance Ministry introduced the PPF in 1968. It has since evolved as a potent instrument for generating long-term profit for investors. This is an excellent strategy for anybody trying to attain long-term objectives and build a financial trust fund for retirement. This plan has a 15-year lock-in term, although the investor can make periodic withdrawals after the 7th year of the scheme. The government sets the interest rate quarterly. PPF outperforms many other investment alternatives primarily because your investment is tax-free under section 80C of the Income Tax Act (ITA), and PPF earnings are likewise tax-free.

Features of Public Provident Fund

  • The PPF interest rate has been set at 7.1 percent for the second quarter of the fiscal year 2022-23, i.e. from July 1st to September 30th, 2022. The interest amount is computed each month on the minimum PPF balance in the account from the 5th to the last day of the month, and the amount is credited to the PPF account at the conclusion of each fiscal year. As a result, PPF investors are urged to contribute to their PPF account by the 5th of each month.
  • PPF is a long-term investment with a 15-year duration. This implies that the money deposited in a PPF account may only be released at maturity,15 years after the account was opened. At the completion of the lock-in term, this tenure might be renewed by 5 years. Premature withdrawals are permitted, but only in extreme circumstances.
  • You can borrow from your PPF account between the third and fifth years, and make limited withdrawals after the seventh year only in the case of emergency.
  • In a fiscal year, you can invest as little as Rs. 500 and as much as Rs. 1,50,000.
  • You cannot open joint PPF accounts, however, you can make someone a nominee.

What are the benefits of PPF?

  • Investing in the PPF scheme¬†provides financial stability for the account holder.¬†
  • Another advantage of participating in the PPF investment plan is the tax advantages it provides. PPF subscribers can receive tax deduction advantages of up to Rs. 1.5 lakhs on investments made in a fiscal year under Section 80C of the Income Tax Act,19. Furthermore, the interest gained by the user is tax-free.
  • Users can borrow against their PPF account between the third and sixth years after creating one. They will have three years from the date of issuance to reimburse the loan amount.

What is the eligibility for a PPF account?

Anyone who is a citizen of India can create a PPF account. Minors or people of unsound minds can open PPF accounts if a guardian does so on their behalf. NRIs are ineligible to open a PPF account.

How can you invest in Public Provident Fund?

A person can become an investor by creating a PPF account, which can be done at a post office or a bank. Aside from investing on their own, one can invest in PPF on behalf of a minor. A PPF account has a set term of 15 years. Moreover, investors can continue it for another 5 years. Investments made in a Public Provident Fund are deductible under Section 80C of the ITA (Income Tax Act). The method for investing in PPF is easy and safe, and investors can do so either offline or online.

 

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