Objective The objective of the PPF is to provide a saving option to those individuals who may not be covered by the provident funds of their employers or may be self-employed. The return is decided by Government of India and is directly dependent on the prevailing interest rate in the economy. Therefore, PPF can be categorized in the debt asset class.

Basic features

  • PPF is a 15-year deposit account that can be opened with a designated bank or a post office.
  • A person can hold only one PPF account in his or her own name or in the name of a minor child to whom he or she is a guardian.
  • Account can be opened by an individual for himself/herself, and or on behalf of a minor of whom he/she is a guardian. HUFs and NRIs are not allowed to open PPF accounts. If a resident subsequently becomes an NRI during the prescribed term, he/she may continue to subscribe to the fund till its maturity on a non-repatriation basis.
  • Joint account cannot be opened, however nomination facility is available.

Maturity

  • Regular deposits have to be made for a period of 15 years; penalties apply for skipping the deposit. The account matures after expiry of 15 years from the end of financial year in which the account was opened.
  • One withdrawal in a financial year is permissible from seventh financial year from the year of opening the account. Maximum withdrawal can be 50% of balance at the end of the fourth year or the immediate preceding year, which ever is lower.
  • The account can be closed in the 16th financial year or continued with or without additional subscription, for further blocks of 5 years. However, the continuation can be with or without contribution. Once an account is continued without contribution for more than a year, the option cannot be changed.

Investment Limits

  • Minimum amount that needs to be deposited in this account is Rs.500 and maximum amount that can be deposited in a financial year in this account is Rs.1,00,000.

Maximum Number of Deposits

  • A maximum of 12 deposits can be made in a single year. Interest is calculated on the lowest balance available in the account between 5th of the month and the last day of the month. However, the total interest in the year is added back to PPF only at year end. Interest is cumulated and not paid out.

Taxation

  • Contribution to PPF is eligible for deduction under sec 80C of Income tax Act 1961. Interest is completely tax free. Unlike other instruments which are eligible for tax deduction under Section 80C, PPF enjoys an exempt-exempt-exempt (EEE) status, where withdrawals are also not taxed.
  • A PPF account is not subject to attachment (seizure of the account by Court order) under any order or decree of a court. However income tax authorities can attach PPF accounts to recover tax dues.

PPF is quite attractive because of exempt-exempt-exempt (EEE) status. However, you must bear in mind that PPF rate of interest is decided by the Government and is directly linked with the interest rate environment in the country. As an investment asset, a PPF should be treated in par with the income assets.