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PPF or Public Provident Fund is one of the most popular long-term savings option. A subscriber can make annual contribution ranging from ₹500 to ₹1.5 lakh in a financial year. The interest rate on PPF is revised every quarter and for the April-June quarter, it fetches an interest rate of 8% per annum. PPF account has tenure of 15 years and can be renewed in blocks of five years. It also enjoys income tax benefits. NRIs are not eligible to open an account under the PPF scheme but they can continue to hold their pre-existing PPF accounts, which were opened while they were resident.
The interest rate on PPF deposits is not fixed. The government revises interest rates every quarter, depending on the yields of government bonds. The interest is compounded annually and credited at the end of the financial year. An investor can choose to deposit the money as a lump sum or in a maximum of 12 contributions per financial year. But the key point to note is that the interest is calculated every month on the lowest balance between the 5th and last date of each month. So ideally a subscriber should deposit the contributions or lump sums before the 5th of each month. If you have the lump sum, invest before 5 April to get interest on the entire amount for the entire year.
Once your PPF account matures at the end of 15 years, you have the option to either close it and withdraw the entire amount, or extend the account with or without fresh deposits. The PPF account can be extended in blocks of 5 years, and there’s no limit on the number of times this can be done.
In case you wish to extend without any fresh deposit/contribution, you don’t need to inform the branch as no intimation within 1 year of maturity is automatically considered as an extension (without contribution) upon maturity. However, remember that you won’t be able to make any fresh deposits thereafter, and the PPF account’s balance would keep earning the applicable interest rate. To extend the account along with fresh deposits, you need to intimate the concerned post office/bank branch. Remember to do so before the expiry of one year from the maturity of the account.
The PPF balance in the subscriber’s account enjoys protection against attachment under any decree or order of any court in respect of any debt or liability incurred by the depositor.
A PPF account can be closed prematurely under special situations provided the account has completed five years. A PPF subscriber is allowed premature closure of the his/her account or the account of the minor of whom he/she is the guardian, if that amount is required for the treatment of life threatening disease of the account holder, spouse or dependent children or parents on production of supporting documents. Premature closure is also allowed if that amount is required for higher education of the account holder or the minor account holder on production of documents in confirmation of admission in an institute of higher education in India or abroad.
However, premature closure of PPF account attracts an interest rate penalty of 1%. Or in other words, the PPF subscriber will get 1% less interest as was applicable.
An account holder is eligible to take a loan against the Public Provident Fund account from the 3rd financial year onward. The loan amount is capped at a maximum of 25% of the balance amount at the end of second year immediately preceding the year in which loan is applied. However, note that since you become eligible to make partial withdrawals from the 7th year, you won’t be able to avail the facility of loan thereon.
Subscribers can one withdrawal every year, from the seventh financial year. The withdrawal amount is capped at 50% of the balance of the customer credit at the end of the fourth year immediately preceding the year of withdrawal or the amount at the end of the preceding year, whichever is lower. Partial withdrawals from the PPF are also tax-free. Partial withdrawals are also allowed even if the PPF account is extended beyond 15 year.
A PPF account can be opened at any designated post office or bank’s branch. However, one can transfer one’s PPF account for various reasons such as relocating to another city (job transfer) or to avail better services in case you aren’t satisfied with the current PPF account provider.
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