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PPF (Public Provident Fund) is a long-term saving scheme backed up by the Indian Government, which offers safety, attractive interest rates and tax-exempt returns.
The National Saving Organization first introduced it in the year 1968.
Any individual who is a resident if India can easily open a PPF account. A PPF account can also be opened by a major on behalf of a minor; for instance, parents can open a PPF account for their minor children. However, those residents who become NRIs after opening the PPF account shall also continue with the account until its maturity, although the opening of any joint or multiple accounts is strictly forbidden.
Depending on the scenario of the rate of interest according to the economy, the rate of interest can be a little higher or slightly fall down. From 01.07.2019, interest rate applicable is 7.9% per annum (compounded yearly).
PPF has an Exempt-Exempt-Exempt (EEE) model of taxation. According to Section 80 C of the Income Tax Act 1961, up to Rs. 1.5 lakh per annum is deductible for the contributions of PPF. The maturity amount and the interest earned on the PPF deposits are exempt (EEE).
The most significant benefit of the Public Provident Fund is that it is totally risk free. As the Government of India backs it, they provide you with guaranteed returns. Hence, it's totally risk free and to go with as the returns are guaranteed.
As the government of India backs the PPF scheme, it has a high level of security. The scheme was governed and backed by the Government Savings Banks Act, 1873. The National Small Savings Fund (NSSF) is the one where the money or the amount is credited, and it is utilized and maintained safely by the Government of India. The Government also pays for the interest on Public Provident Fund. And with this, the security becomes more potent than the banks out there because the FDs or the Fixed Deposits up to Rs. 1 lakh are only insured by the Credit Guarantee Corporation (DICGC) and Deposit Insurance.
After some years of opening a new account, that is, from the 3rd to the 6th year, you can avail of the loan against your PPF account. The maximum tenure for the loans is 36 months. The amount that is the closing balance after the 2nd financial year can be availed for the loan against PPF accounts is a maximum of 25% that is in the preceding when the loan is applied for. The rate of interest that is payable for the loan against PPF account is 2% higher in compared to the rate of interest on PPF account. Like, if the rate of interest of the PPF is 8%, then the rate of interest payable on loan would be 10%. The best thing is that you don't need any additional security.
The partial withdrawals can be made after the expiry of the 5th financial year soon after the year the new account is opened. For per monetary year, only one partial withdrawal is enabled. As per the financial year, the maximum amount that can be withdrawn would be calculated on a pro rata basis.
As per the declared rates, the Public Provident Funds are compounded annually. The rate of interest is announced every quarter so that it can be helpful for the applicable interest rate for PPA benefits that can be weighted normal of each rate.
What is the tenure of PPF?
The maturity of PPF account is 15 years from the end of the financial year in which the bank account was opened. For instance, if a bank account was opened on 18th October 2012, then the same account will be matured on 31st March 2027, i.e., exact 15 years from 31st March 2012.
What are the nomination rules for the PPF account?
It is not generally necessary to make a nomination towards a single person only- nomination can be made in favor of more than a single person. But also, when more than one nominee is appointed, the share of each nominee should be clearly specified. However, nominations cannot be made for a minor's PPF account. For other PPF accounts, any relative or acquaintance can be appointed through "Form E".
When can nomination be made? What are the general rules for it?
There is no specified time criteria for a nomination to be made. A nominee can be easily appointed throughout the tenure of the PPF account. In case any change, alteration, or cancellation comes necessary, it can be conveniently done through "Form F". Nomination form needs to be signed by the account holder and any two witnesses, although nominees are not required to sign it anywhere. Later, Form F needs to be submitted in the appropriate bank branch or post office.
What are the Minimum and Maximum Contribution that can be made annually to the account?
The minimum contribution that necessarily should be made to the account is Rs. 500 in one year. The maximum contribution that can be made in the account annually is topped at Rs. 1.5 Lakhs. The limit of maximum contribution is applicable to the individual account holder as well as parents holding an account for their minor children. However, only a maximum of 12 transactions are allowed in the PPF account in the whole year.