Despite declining interest rates, PPF or Public Provident Fund remains one of the most popular investment options. In terms of income tax implications, PPF enjoys EEE or exempt, exempt, exempt status - contribution, interest and maturity proceeds all are tax free. From April last year, interest rate on PPF and other small savings schemes are being reset every quarter. Earlier, they were reset annually. The interest rates on PPF and other small savings schemes are linked to yields on government bonds, with a small mark-up. The government recently kept unchanged the interest rates on Public Provident Funds (PPF) for the quarter ending December. Investments in the PPF scheme will hence fetch an annual rate of 7.8 per cent. PPF deposits are eligible for tax deductions under Section 80C - a maximum of Rs. 1.5 lakh can be claimed in one financial year.
Here are some other benefits of PPF account:
PPF Partial Withdrawal
A PPF account matures after the completion of 15 years from the end of the year in which the account was opened. Withdrawal from PPF account is permissible every year from the seventh financial year of the date of opening of the account. The amount should not exceed 50 per cent of the balance at the end of the fourth preceding year or the year immediately preceding the year of the withdrawal, whichever is lower, less the amount of loan if any. Only one time withdrawal is permissible during one financial year. (Also read: PPF account to be closed if account holder becomes NRI)
Premature Closure Of PPF Account
Premature closure is allowed only after the account has completed five financial years and under specific conditions like expenditure towards medical treatment and higher education, according to an amendment in 2016.
Loan Against PPF Account
A depositor can avail of loan facility in the third financial year from the financial year in which the PPF account was opened. The loan can be taken up to 25 per cent of the amount in the account at the end of the second year immediately preceding the year in which the loan is applied for, according to the website of Bank of Baroda, which also offers PPF services. The loan is repayable in lump sum or instalments. If loan is repaid within 36 months, interest is charged at 2 per cent over PPF interest rate, the website adds. Once the first loan is repaid, second loan can be obtained on same terms. This facility is available till the end of 5th financial year from the end of the financial year in which the account was opened. Such loan can be taken only once a year.
PPF Account Extension
The original duration of a PPF account is 15 years. Thereafter, on application by the subscriber, it can be extended for one or more blocks of 5 years each.
PPF Interest Rate Calculation
The interest rate on PPF is compounded annually. Interest is paid on 31st March every year. The interest for the month is calculated on the minimum balance available in the account from 5th of a month to the last date of the month. (With Agency Inputs)