For conservative investors, financial planners say, PPF remains a good option for long-term savings despite falling interest rates. Investors in PPF or public provident fund currently get an interest rate of 7.8 per cent. PPF enjoys EEE or exempt, exempt, exempt status in terms of income tax implications - contribution, interest and maturity proceeds all are tax free. Interest rate on PPF and other small savings scheme are currently being reset every quarter from April last year. They were recalibrated annually earlier. The interest rate on PPF and other small savings schemes are benchmarked to yields on government bonds, with a small mark-up.
PPF Rules On Withdrawal, Loan Facility, Transfer And Interest Rate
1) PPF Interest Rate
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.
2) PPF Minimum Contribution
The minimum deposit in a PPF account in a financial year is Rs. 500 and maximum Rs. 1.5 lakh. A penalty of Rs. 50 is levied per year for default, if the customer does not deposit the minimum amount of Rs. 500 in a financial year. PPF deposits can be done maximum in 12 transactions in a financial year.
3) Only one PPF account can be maintained by an individual, except an account that is opened on behalf of a minor.
4) A subscriber can open account on behalf of a minor but subject to maximum yearly contribution limit of Rs. 1.5 lakh in all the accounts.
5) If PPF subscribers fail to deposit the minimum amount Rs. 500 in a financial year, the account will be treated as discontinued. The subscriber in such cases will not be entitled to obtain a loan or make a partial withdrawal unless the account is revived. The subscriber cannot open another PPF account in addition to the discontinued one.
7 PPF Account Revival: A PPF subscriber can revive the discontinued account by payment of Rs. 50 as penalty for each year of default along with arrears subscription of Rs. 500 for each year.
8) PPF Account Maturity: The maturity period of PPF account is 15 years but can be extended within one year of maturity for further 5 years and so on. An account can be transferred from one authorised bank or post office to another. In such case, the PPF account will be considered as a continuing account.
9) PPF Loan: 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.
10) PPF Partial Withdrawal: 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.