The Public Provident Fund (PPF) scheme is a savings scheme conceptualised by the National Savings Institute and offered by the government of India. It provides handsome, guaranteed returns. However, the rate of interest can change.
Accounts can be opened with the Post Office as well as with public and designated private banks.
Benefits
Attractive rate of interest
The PPF account offers a handsome rate of interest which is determined every quarter by the Ministry of Finance – Department of Economic Affairs, along with the rates for all the other National Small Savings Schemes. Since April 2020, the rate of interest has remained unchanged at 7.1%.
Historically, the rate on PPF accounts has been 25 basis points, or more, higher than the yield on Government bonds of similar maturity, with a variety of factors taken into account by the government while determining the rate.
Historical rates:
|
From
|
To
|
Interest Rate
|
|---|---|---|
|
1 Apr 2012
|
31 Mar 2013
|
8.80
|
|
1 Apr 2013
|
31 Mar 2016
|
8.70
|
|
1 Apr 2016
|
30 Sep 2016
|
8.10
|
|
1 Oct 2016
|
31 Mar 2017
|
8.00
|
|
1 Apr 2017
|
30 Jun 2017
|
7.90
|
|
1 Jul 2017
|
31 Dec 2017
|
7.80
|
|
1 Jan 2018
|
30 Sep 2018
|
7.60
|
|
1 Oct 2018
|
30 Jun 2019
|
8.00
|
|
1 Jun 2019
|
31 Mar 2020
|
7.90
|
|
1 Apr 2020
|
|
7.10
|
PPF rates have, at almost every point in time in the last 10 years, been higher than the highest rates offered on Fixed Deposits by government banks.
It must, however, be notes that the interest applicable is evaluated and declared every quarter by the Ministry of Finance, as is also done for a number of other savings schemes. The declared rate is applicable to the entire balance in the account.
Tax benefits
- Deposits into the account qualify for deduction under Sec.80-C of I.T.Act, a part of the overall ceiling of Rs. 1,50,000.
- Interest earned on the account is free from Income Tax under Section -10 of the I.T.Act.
- Withdrawals from the account are free from any taxation liability.
These make the PPF account extremely tax efficient, and superior to fixed deposits in banks and most other government schemes.
Free from attachment
The amount in a PPF account cannot be attached under any court decree or law, making it highly secure for the account holder.
Features
- An account can be opened for a minimum value of Rs. 500-. The maximum that can be deposited during a financial year in an account is Rs. 1,50,000-. If, perchance, more does get deposited, it will not earn any interest.
- It can only be opened by resident Indian individuals.
- Interest is calculated on a monthly basis on the minimum balance between the 5th and last day of the month and paid at the end of the year.
- A minimum deposit needs to be made every year the account is live.
- Loans can be taken against the account from the 3rd year onwards up to the 6th year. From the 6th year, partial withdrawals can be made.
- The account can be maintained for a period of 15 years. On maturity after 15 years, it can continue to be extended in blocks of 5 years at a time, for any number of such blocks.
- Account holders also have the option of retaining the account after maturity without further transactions, but earning interest on the balance held at maturity, at prevailing rates.
- Premature closure of the account is possible 5 years after opening, in certain situations such as treatment of life-threatening conditions, higher education and change in residency status. In the event of such a premature closure, the rate of interest will be 1% lower than the rate at which interest credits have been given.
Competition
While pension funds create regular income after retirement, provident funds yield a lumpsum amount at or around the time of retirement.
Non-organized workers, including small business owners, do not have access to any organized form of getting such a lumpsum amount except for their own savings.
The PPF scheme creates a high-yield and tax-efficient scheme where small savings can be accumulated over a period of time and which can provide the account holder with a lumpsum value at a later date.
The PPF scheme competes with Bank deposits, Government bonds and other Fixed Income instruments.
Website
https://nsiindia.gov.in/InternalPage.aspx?Id_Pk=169
Recommendation
Should be subscribed by everyone who is eligible.
PPF accounts can be opened through the Post Office as well as many commercial banks in India.
