In the last blog, we talked about the basic features of PPF, its return profile and how you can open a PPF account. PPF has been an attractive investment option for long because of its safety aspect and tax treatment. It serves as an ideal investment avenue for risk-averse investors planning long-term goals that are at least 15 years away. The scheme can also serve as a safer diversification tool into the debt asset class for your overall portfolio. Essentially, it fits differently for each individual, depending upon their goals and portfolios. Today we’ll touch upon the five aspects of this vast small savings scheme.
There is ample liquidity : You can withdraw prematurely from the PPF, given the account has completed five complete financial years from the end of the FY in which the account was opened. However, your withdrawal cannot exceed lower of 50% of the amount that stood to your credit:
- at the end of the fourth year immediately preceding the year of withdrawal or,
- at the end of the preceding year.
Also, the withdrawal facility can be availed only once a year and any loans outstanding along with interest should be repaid by you before availing the withdrawal facility.
You can take loans from your PPF : The loan facility is available in the PPF account from the expiry of one financial year from the end of the FY in which the account was opened but before the expiry of five years from the end of the FY in which the account was opened. However, the loan amount cannot exceed 25% of the account balance at the end of the second year immediately preceding the year in which the loan is applied.
At the same time, you can’t apply for a fresh loan if you haven’t repaid previous loans in full, and only a single loan can be availed in a year. The loans carry an interest of 1% per annum, but in case of non-repayment of the loan amount or part payment, the interest on the amount of loan outstanding shall be charged at 6% per annum after thirty-six months.
Continuing your PPF post-maturity : The PPF account can be extended indefinitely post maturity in blocks of five years with or without contributions. If you want to continue your account with contribution, you can do so by intimating the bank/post office before the end of one year from the date of maturity, failing which the account is automatically extended and will continue to earn interest.
However, you will not have the option to continue the account with deposits again, and only a single withdrawal (any amount, subject to the account balance) will be permitted in a year.
In the case you continue with deposits, the withdrawals will be allowed subject to the condition that the total withdrawal (either in a single or in yearly instalments) during the five-year extension period shall not exceed 60% of the account balance that was standing at the commencement of the block period.
Further, the continuation of the account with deposits for one or more than one five-year block enables you to leave the account without deposits on completion of any five-year period. The account shall continue to earn interest till it is closed, and you will be allowed to make one withdrawal every year from the account.
Closing your account before maturity : PPF account can be prematurely closed after completion of five years from the end of the financial year in which it was opened, subject to the following grounds:
- Treatment of life-threatening disease of the account holder, his spouse or dependent children or parents, on the production of supporting documents and medical reports confirming such disease from treating medical authority;
- higher education of the account holder or dependent children on the production of documents and fee bills in confirmation of admission in a recognised institute of higher education in India or abroad;
- on change in residency status of the account holder on submission of the copy of Passport and visa or Income-tax return
However, in the case of premature closure, interest in the account will be allowed at a rate that will be 1% lower than the rate at which interest has been credited in the account from time to time since the date of opening of the account, or the date of extension of the account, as the case may be.
Tax is the sweet spot: The Public Provident Fund offers enormous tax benefits. It is classified under the EEE category. That means your deposits, interest earned, and the maturity amount is tax-free.
Your contributions to the PPF account are eligible for deduction u/s 80C up to the maximum of 1.5 lakhs in a financial year. Further, the maturity amount and any interest earned during the period or any withdrawals made during the scheme’s tenure are entirely tax-exempt.
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– Nischay Avichal