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Public Provident Fund- आस्था है तो सब कुछ है||



Public Provident Fund- आस्था है तो सब कुछ है||

                   (An advice from elders)



Public provident fund or PPF is a very important and must have instrument in  one’s investment portfolio.This is something that is told by all elders to young earning member of family to open a PPF account as since ages it is considered as  one of the best ways to save tax, tong term saving and tax free return instrument. 
But one has to have clarity on its provisions and basic PPF rules so that one can make the optimum use of the instrument to achieve its future life and financial goals.

A minimum yearly deposit of ₹500 is required to open and maintain a PPF account. A PPF account holder can deposit a maximum of ₹1.5 lacs in his/her PPF account (including those accounts where he is the guardian) per financial year. There must be a guardian for PPF accounts opened in the name of minor children. Parents can act as guardians in such PPF accounts of minor children. Any amount deposited in excess of ₹1.5 lacs in a financial year won't earn any interest. The amount can be deposited in lump sum or in a maximum of 12 installments per year. However, this does not mean a single deposit once in a month.
The Ministry of Finance, Government of India announces the rate of interest for PPF account every quarter. The current interest rate effective from 1 October 2018 is 8.0% Per Annum' (compounded annually). Interest will be paid on 31 March every year.


Features


PPF account can be voluntarily opened with any nationalized bank, selected authorized private bank or post office. The account can be opened in the name of individuals including minor.
  • The minimum amount is ₹500 which can be deposited.
  • The maximum amount which can be deposited every year is ₹150,000 in an account at present.
  • deposit in account is restricted to only 12 times in a year
  • There is lock in period of 15 years
  • The rate of interest at present is 8.0% per annum (as of Dec 2018).Interest received is tax free.
  • The interest earned on the PPF subscription is compounded annually.
  • The entire balance can be withdrawn on maturity.
  • All the balance that accumulates over time is exempted from wealth tax.


Withdrawals from PPF account

There is a lock-in period of 15 years and the money can be withdrawn in full after its maturity period. However, pre-mature withdrawals can be made from the start of the seventh financial year. The maximum amount that can be withdrawn pre-maturely is equal to 50% of the amount that stood in the account at the end of 4th year preceding the year in which the amount is withdrawn or the end of the preceding year whichever is lower.
After 15 years of maturity, full PPF amount can be withdrawn and all is tax free, including the interest amount as well.


Loans


Loan facility available from 3rd financial year up to 6th financial year. The rate of interest charged on loan taken by the subscriber of a PPF account on or after 01.12.2011 shall be 2% more than the prevailing interest on PPF. However, the rate of interest of 1% more than PPF interest p.a. shall continue to be charged on the loans already taken or taken up to 30.11.2013.
Up to a maximum of 25 per cent of the balance at the end of the 2nd immediately preceding year would be allowed as loan. Such withdrawals are to be repaid within 36 months.
A second loan could be availed as long as you are within the 3rd and before the 6th year, and only if the first one is fully repaid. Also note that once you become eligible for withdrawals, no loans would be permitted. Inactive accounts or discontinued accounts are not eligible for loan.

Premature closure of PPF account


The Public Provident Fund (Amendment) Scheme, 2016 made changes in Paragraph 9, for sub-rule 3(C) of Public Provident Fund Scheme, 1968 to facilitate the premature closure of PPF Account.[18] Premature closure of PPF account is permitted after completion of 5 years for medical treatment of family members and for higher education of PPF account holder. However, premature closure comes with an interest rate penalty of 1%.

PPF tax concessions


Annual contributions qualify for tax deduction under Section 80C of income tax. The tax benefit is capped at ₹1.5 lacs per financial year. Contributions to PPF accounts of the spouse and children are also eligible for tax deduction.
PPF falls under EEE (Exempt,Exempt,Exempt) tax basket. Contribution to PPF account is eligible for tax benefit under Section 80C of the Income Tax Act. Interest earned is exempt from income tax and maturity proceeds are also exempt from tax.




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