PPF And Income Tax Benefit

Public provident fund is a very popular means investing for a majority of salaried people. Investment options are multiple. However, there are few investments which provide a balance between risk and return as desired by most investors. Public Provident Funds or PPFs as they are popularly called have always been counted as a safe way to avail tax free interest income.

Eligibility:

Hindu Undivided families cannot invest here. Salaried and self employed individuals are eligible. Further, all non resident persons cannot open these accounts. However, an individual who becomes non resident subsequently, but was resident at the time of opening will not face any hard ship as a result of this provision. One needs only a minimal sum of Rs.100/- to open these accounts. However, the minimum annual deposit in a financial year is Rs.500/- while the maximum was recently raised from 100,000 to 1,50,000 rupees.

Limitations:

These accounts can be opened only in a person’s name. They cannot be jointly held. One can only possess one of these accounts. If anyone is found to have more than one, all of them will be closed forth with and only the principle sum is refunded – all interest thereof rescinded.


Rules:

Currently, it pays interest @ 8.70% P.A. with number of deposits restricted to 12 in a year. If one is unable to pay the minimum annual deposit, while the interest continues to accrue, the account is suspended. The same can be regularised again by paying the relevant charges. Interest here is calculated on the lowest balance in the account between the fifth and 30th day of the month.
 

Term:

A PPF account can be maintained for a period of 15 years. The life term of the account can be extended by 5 years on expiry. The extension when done with further contribution option, then up to 60% of the value is allowed to be withdrawn at the beginning of each block of 5 years of extension. If the without further subscription option is selected, the balance still earns interest. On expiry one can close the account and open a new account. However, the balance in these accounts will be blocked for 7 years with withdrawal post which 50% of the deposits can be withdrawn at a time. The account also permits premature withdrawal from after the 7th year. The amount which can be taken out is the lower of, half of the balance due at the end of the immediately prior year or that at the end of year – 4.

These accounts offer tax benefit under section 80 C for up to 1.5 lakhs and the sum receivable on maturity is taxable. However, the interest payments received are tax exempt under section 10 of the Income tax act.

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