Public Provident Fund: Everything You Should Be Aware Of
Updated On Sep 28, 2022
Table of Contents
In 1968, the Ministry of Finance established the Public Provident Fund Scheme, a tax-deferral plan with a 7.6 percent interest rate. It was created mainly to encourage salaried people to save, and the minimum deposit amount in a PPF account is not very high. Investing in a PPF account is a good idea because it lets you save on taxes, it's easy to understand, safe since it's backed by the government.
What is a Public Provident Fund Account?
A PPF is a voluntary long-term investment plan that is not linked to the market and is supported by the central government. It guarantees returns (usually between 7-8%). PPF plans have a lock-in duration of 15 years, which can be extended by up to 5 more years. After seven years, however, you can take money out of your account (up to half of the public provident fund balance). You can also use the money in your PPF account to get a loan.
PPF accounts can accept deposits as low as Rs. 500 and as much as Rs. 1.5 lakh. If you don't keep at least the minimum amount in your Public Provident Fund account, it discontinues. To open the account, you will have to pay a fine of Rs. 50. On the other hand, if you put more than Rs. 1.5 lakh into your PPF account, the sum over Rs. 1.5 lakh won't earn any interest.
Contributions to a PPF account, income received on those contributions, and the principal at maturity are all free of taxation thanks to the account's exempt-exempt-exempt (EEE) status. Under Section 80C, you can deduct the full amount of your PPF contributions up to Rs. 1.5 million from your taxable income.
Benefits from the Public Provident Fund
The following are the benefits of the public provident fund:
- A public provident fund is a good way to plan for retirement because, with disciplined savings, it's easy to set up a great financial cushion for the future, and both investment growth and tax-free returns add to it.
- A PPF is a good long-term investment that lasts 15 years and has a seven-year lock-in period. With attractive interest rates that are added up every year, the PPF is a better way to make money than bank fixed deposits.
- A PPF is a plan that is backed by the government. It has a lower chance of going bankrupt and is thought to be a safe way to save money for the future.
- Since PPF is a government-backed programme, it is immune to claims from creditors and legal processes.
- The money you put into a public provident fund grows tax-deferred, and any withdrawals you make after retirement are likewise excluded from taxes under section 80C of the Income Tax Act, making it a great choice for retirement savings.
- A PPF account can be opened at any government or public sector bank, including post offices, that is authorized to accept PPF deposits. Also, a PPF account can now be opened by a single person.
Period of the PPF's Validity
The PPF is valid for at least 15 years. This deadline can be pushed back by five years at a time. Your PPF account can be preserved even after it has reached maturity if you like, and the present rate of return means that doing so will not incur any penalties.
Maturity of the Public Provident Fund
Your Personal Pension Fund (PPF) account is considered mature if 15 complete financial years have passed since the end of the fiscal year in which it was first opened.
Withdrawal from the Public Provident Fund (PPF)
By taking Form C to a post office or bank at the end of the term, you can get the whole amount and close your PPF account. You can avoid having to remove the entire balance at once by withdrawing a certain amount annually instead of taking it out when the investment matures.
Conclusion
In addition to assisting you in setting aside a sufficient amount of money for your life after retirement, a Public Provident Fund (PPF) is a useful financial tool that, throughout the course of your working life, can also serve as a valuable investment that reduces your overall tax liability.
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