Provident Fund is a scheme designed and controlled by Government of India for the Indian taxpayers. The primary purpose of this scheme is to secure the post-retirement life of taxpayers. Investment in Provident Fund is classified in 2 broad types-
- Employee’s Provident Fund (EPF) – For salaried taxpayers only.
- Public Provident Fund (PPF) – For all taxpayers including salaried taxpayers.
What is Public Provident Fund (PPF)?
This scheme was launched by Ministry of Finance of Government of India in 1968. The objective for launching the scheme is to boost the habit of savings among taxpayers and to create an adequate corpus for their retirement.
Who can open PPF A/c.?
Only resident taxpayer of age 18 years or more can open PPF A/c. It can be opened in any Nationalized Bank or post office. Some private sector banks also provide the service of PPF. Taxpayer is required to provide his basic details along with identity and address proof while opening an A/c.
Further minor [person of age less than 18] can also open PPF A/c. However in such case, documents related to minor’s guardian are also required to be provided.
What are the features of PPF A/c.?
PPF is one of most tax competent scheme as it serves many benefits viz. tax exemption, retirement planning etc. The key features of PPF A/c. are as follows-
- Investment amount :- At the time of opening an A/c., any sum minimum of Rs. 100/- needs to be invested by taxpayer. Afterwards minimum of Rs. 500/- and maximum of Rs. 1,50,000/- can be invested every financial year. Such investment can be made in lumpsum of in 12 installments.
- Period :- PPF A/c. is required to be maintained for minimum of 15 years from the year of opening thte A/c. However, after completion of 15 years, It can be extended for further block of 5 years and so on.
- Interest rate :- Interest credited to PPF A/c. is compounded annually. Interest rate varies year to year as per the announcement by Government. For financial year 2015-16, interest rate is 8.70% p.a.
- Withdrawals from A/c. :- Taxpayer can withdraw sum from his PPF A/c. before completion of 15 years but after fulfilling some conditions.
- Tax Benefits :- Taxpayer can enjoy tax benefits on investment in PPF. Further interest earned by him is also tax-free.
- Transfer :- PPF A/c. can be transferred from one branch to another of a same bank or post office. However A/c. cannot be transferred in the name of another person.
Why one should go for PPF investment?
- Secured retirement :- Investment in PPF assures taxpayer regarding adequate corpus for his post retirement.
- Tax exemption :- PPF scheme comes under EEE. That is taxpayer gets tax benefit U/s. 80C on investment in PPF. Interest earned in also tax free. Further the amount received at the time of maturity is also tax free.
- Interest rate :- Current interest rate for PPF is 8.70%. Interest earned on PPF varies every year which is more beneficial than fixed interest of bank FDR. Further this interest is compounded annually.
- Risk component :- Since PPF is administered by Government; the risk of default is comparatively low.
- Loan facility :- Taxpayer can raise a loan from 3rd year against the balance in his PPF A/c.
- Attachment of A/c. :- PPF A/c. of a taxpayer cannot be attached against any decree order of any court.