Public Provident Fund scheme- Tax benefits and features.
Public Provident Fund scheme is a popular savings scheme option which was started by under government of India in 1968. This tax-free savings scheme offers attractive interest rates and tax benefit plans for salaried persons. Among investors, Public provident fund scheme is a very popular investment option. PPF scheme investor-friendly features which include loans, withdrawal and account extension benefits. Under the Income-tax act, 1961, the contributions to the public provident fund account are eligible for deduction in taxes.
PPF scheme is backed by the Indian government. This is ideal for people who don’t want to take a higher risk in investments. The Public provident fund scheme comes with guaranteed returns to ensure the safety of the financial requirements. Since the plan has been mandated by the government, it safeguards the interests of masses. Also, the investment funds are not market-linked in the PPF accounts. At the time of decline in business growth, PPF funds will provide consistent returns on the investments per year.
Who can apply to create a PPF account?
Any Indian citizen residing in the country can open the public provident fund (PPF) account with her/his name. Opening of a PPF account is very instant and simple. Existing Customers can also open a PPF account online. Minors can also open a PPF account with her/his name but must ensure it is operated by their guardian. Indians who live abroad are not allowed to open a PPF account. However, even if they have one active account they cannot extend that for 5 years. This benefit is available for Indians only.
Key features of Public Provident Fund scheme account:
1. Tenure for the investment: Funds cannot be withdrawn before the lock-in period. A PPF account holds a lock-in tenure on investment over 15 years. But if required, an investor can extend the period by 5 years after lock-in tenure is over.
2. Principal amount: Under a public provident fund scheme, a minimum amount of INR 500 lakhs can be invested. This amount can range at a maximum of INR 1.5 lakhs. Any individual can have 12 annual instalments payments into PPF account. The investment can be done on an instalment basis or in a lump sum basis. However, to ensure the account remains active, investment is needed to be made each year.
3. Loan against investment: One of the benefits in PPF is you can avail loans against the investment money. However, the term of loans against PPF is a maximum of 36 months.
Exemptions from income tax are only applicable to the invested amount in a PPF account. Under the income tax act, section 80C, all the deposits that are made on a PPF is deductible. The collected amount and interest will also be exempted from the tax calculations. At the time of withdrawal, this will be exempted. Note that a PPF account can’t be terminated before it reaches maturity period.
So these were the public provident fund (PPF) scheme tax benefits and its key features.