Everyone wants to see their money grow but not all of them want to take risk, trade share or deal in real estate. Is it possible to invest money in risk-free environment and acquire guaranteed profit? Is it possible to save taxes on the investment I make? Is it possible to acquire a decent interest rate of 8% without putting my money on risk? Yes! It is quite possible to see your money grow at 8% without putting it under risk. Yes! It is possible to save taxes by making investment in secure funds. Yes! It is possible to achieve your long-term and short-term goal with meager investments. A PPF Account is all you need to fulfill all your needs.
What is a PPF Account?
A PPF Account is among one of the Ten Things Every 20 Something Should Know About Money! Public Provident Fund Account is one of the most safest and standard forms of investing tool. Investors of all calibers are attracted to PPF account because of the huge tax savings it provides along with the confidence of guaranteed returns.
PPF Accounts are government backed investment scheme, which guarantees a specified tax-free return. Tax-free return means no tax will be levied on the maturity amount. If the maturity amount is 30,00,000 INR then you will get 30,00,000 in full, government will not charge any kind of tax on it, not even service tax.
Your Public Provident Fund Account falls under Exempt-Exempt-Exempt (EEE) tax regime, which means you get to pay less tax every year. A PPF account can be used for achieving both long-term and short-term goals. One needs to invest time to time to reap greater benefits of a PPF Account.
How does a PPF Account works?
The first thing to know about PPF Account is that anyone above the age of 18 can open it; there’s no upper age limit for opening a PPF account. People can open their account in banks, post offices and other institutions listed by government. Banks are the best place to open a PPF account because it is easier and suitable.
- How many PPF accounts one person can open?
Answer: One person can have only one PPF account; these accounts are generated only on submission of PAN Card hence any account with duplicate Pan No. Will be discontinued on its own. Though it is allowed for parents to open PPF Account of their minor kids, which needs to be transferred once the children mature.
- What is the Interest Rate a PPF Account pays?
Answer: The current interest rate paid on investments made in PPF account is 8.1%. Till last year it was 8.7%. The interest rate provided is subject to Financial Condition of Country. Rates can be altered annually during the Budget Session.
- What is the minimum and maximum amount one can invest in these accounts?
Answer: The minimum amount that needs to be invested on annual basis is 500 INR; any account with less than 500 INR investments will be discontinued.
Pro Tip: One can re-start their PPF account by paying a fine of 50 INR for the years the account has been discontinued. For example: If you have failed to fund your PPF account with 500 INR for two consecutive years then you will have to pay 100 INR as fine + 1000 INR (minimum contribution of 500 INR for two years) to re-start your account.
Maximum amount that can be invested on annual basis is 1,50,000 INR. No one can fund their accounts more than 1,50,000 INR on annual basis.
- What is the minimum and maximum number of deposits one can make annually?
Answer: The minimum number of transaction to be made on annual basis is 1 and maximum is 12.
- When will my PPF Account mature?
Answer: PPF accounts mature at the end of 15th Financial Year after you opened your account. For example: If you opened your PPF account on 1st April 2012 then your account will not mature in 2027, it will mature on 31st March 2028 because PPF Accounts follow the financial year calendar. Every account matures on 31st March, there’s no exception.
- What are the options I have when my account matures?
Answer: You are going to have three options when your PPF account matures:
- Withdraw all your accumulated wealth and close your account.
- Extend your PPF account by 5 more years without any contribution. In this period of 5 years, your account will continue to generate interest on the accumulated wealth.
- Extend your PPF account by 5 years with further contribution. You will be able to add another 1,50,000 for every five years and continue to garner interest.
- Is it possible for me to withdraw money from my PPF Account before 15 years?
The simple answer to this complicated question is Yes! Yes, it is possible to withdraw money from PPF accounts even before completion of 15 years. Though withdrawals can only be made after the completion of five financial years from the date of opening PPF account, which means if you have opened your account on 15th May 2004 then you will be able to make partial withdrawals after 1st April 2010.
- What is the natural of withdrawals I can make from my PPF account?
One can make PARTIAL Withdrawals from their PPF account once their accounts have completed five years in age. Partial withdrawal is limited up to 50% of the total accumulated sum. The 50% of sum that can be withdrawn also consists of the interests charged over interests. It is a win-win situation for everyone who opens a PPF account earlier in life.
Pro Tip: Here’s more things you can do to grow rich over the time.
- Can I take loan against balance in my PPF Account?
PPF Account is a long-term investment hence the government and banks can trust account owners and leverage them with loans as per their requirement. One can take loan against the balance in their PPF Account, the loans are allowed only after the completion of 1st financial year and one can take up loan only up to completion of 5th financial year. The interest charged on such loans is 2% p.a. One can take up to 25% of balance in their PPF Account as loan.
PPF Account and Income Tax Act
It is extremely important that people understand Public Provident Fund is government backed investment tool and is governed by PPF ACT, 1968. The interest earned, tax charged and saved are managed by the Income Tax Department.
Any kind of contribution to self or PPF accounts of spouse or children are liable for deductions under Section 80 C of the Income Tax Act. The total amount of deduction one can make under Section 80 C by contributing to PPF accounts is 1.5 Lac per annum. The 1.5 Lac includes contribution made to accounts related to spouse and children as well.
Important Information: Income Tax Department puts no restriction on amount you can contribute to PPF accounts. The PPF Acts adds the restrictions.
What happens when I deposit more than 1.5 Lac in my PPF Account?
The PPF Act limits the maximum contribution to your PPF account and the PPF accounts you are guardian up to 1.5 lac Collectively. Yes! If you have opened a PPF account for your children then total amount you can contribute to your and your child’s account should not exceed 1.5 lac.
If you end up depositing more than 1.5 lac INR collectively then the extra-added income will not earn any kind of interest.
Maximum deposit limit to PPF Accounts= Your PPF contribution+ Contribution to your child’s PPF < 1,50,000 INR. The tax benefit you can earn is upto 1.5 lac under Section 80 C.
Can I contribute to my wife’s PPF Account?
The simple answer is yes! You can contribute to your wife’s PPF Account. As she is major (above 18) hence you can contribute another 1,50,000 INR to her PPF account. This way you will be able to contribute 3,00,000 INR to PPF Account, including yours but the tax deduction you will be liable will still be 1,50,000 INR under section 80 C.
What is the magical thing about PPF Account?
There’s nothing magical but then there is Compound Interest, which is no less than magic. You can actually see your money grow and at times before your eyes.
If you are 22 years old and if you contribute 1,50,000 INR annually to your PPF account for upcoming 15 financial years then you will be investing 22,50,000 INR and maturity amount you will get is 46,75,910 INR, which is almost double.
Well, there are investment tools that yield much more but with PPF account there are benefits, no other investment tools provide, i.e:
- The maturity value 46,75,910 will be deposited directly t your account, without any deduction.
- This is a government backed investment tool hence you get what is promised. For the financial year of 2016-17, promised interest rate is 8.1.
- The facility of partial withdrawal up to 50% is very rare
- The facility of acquiring loan is additional benefit.