PPF or Public Provident Fund is one of the most popular saving schemes for the long term. From April 2016, interest rates on PPF and other small savings schemes are being reset on a quarterly basis, as compared to annually previously. In terms of income tax implications, PPF enjoys an EEE – exempt, exempt, exempt – status. This means the contribution, interest and maturity proceeds all are tax-free. Deposits in a PPF account are eligible for tax deductions under Section 80C of the Income Tax Act – a maximum of Rs. 1.5 lakh can be claimed for a financial year under Section 80C.
PPF accounts have a maturity of 15 years, a period that can be extended in blocks of five years. The PPF account holder needs to make a minimum deposit of Rs. 500 in a year. The maximum deposit allowed in a year is Rs. 1.5 lakh.
PPF Interest Rate
The interest rate on PPF is compounded annually. For the quarter from January to March 2018, the government has lowered the interest rate to 7.6 per cent (compounded annually), from 7.8 per cent. Interest is paid on the 31st of March every year.
Premature Closure Of PPF Account
Premature closure of PPF account is allowed only under specific conditions such as expenditure towards medical treatment and higher education, according to an amendment in 2016. The account has to complete at least five financial years.
Partial PPF Withdrawal
Withdrawal from PPF account is permissible every year from the seventh financial year of the date of opening of the account. The amount should not exceed 50 per cent of the balance at the end of the fourth preceding year or the year immediately preceding the year of the withdrawal, whichever is lower, less the amount of loan if any. Only one time withdrawal is permissible during one financial year.
PPF Loan – Eligibility and Other Details
A depositor can avail of loan facility in the third financial year from the financial year in which the PPF account was opened. The loan can be taken up to 25 per cent of the amount in the account at the end of the second year immediately preceding the year in which the loan is applied for. If the loan is repaid within 36 months, interest is charged at 2 per cent over PPF interest rate. Once the first loan is repaid, second loan can be obtained. This facility is available till the end of 5th financial year from the end of the financial year in which the account was opened. Such loan can be taken only once a year.
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