Public provident fund or PPF is one of the best risk free or secured long term investment plan for individuals. Whether you are a salaried individual or self employed person, we advise you to take benefits of PPF scheme.
Today, we will discuss how to start investing in a public provident fund scheme and it’s tax benefits and drawbacks.
How to invest in public provident fund scheme or PPF
To start investing in a Public Provident Fund scheme, you are required to open your PPF account either with a designated bank or post office.
All most all banks are authorised to open a Public Provident Fund (PPF) Account.
Private and leading public sector banks are providing online PPF account facility where you can keep track of your account online instead of physically visiting to update your passbook.
To open your PPF Account you are required following documents;
- PAN Card copy
- Government issued Address Proof
- Two passport size photograph
- Signed Application form
You have to deposit a minimum amount of 500 rupees every year up to a maximum amount of Rs. 1, 50,000.
Apart from higher interest rates, you will enjoy many other benefits by investing in a PPF Scheme. Here are major benefits of investing in public provident fund scheme;
Tax deduction for PPF contributions under section 80C
Amount invested in a public provident fund scheme can be claimed as income tax deduction along with other eligible investments under section 80C of income tax act.
Deduction under section 80C can be claimed up to a maximum limit of Rs. 1,50,000.
Not only your contribution to public provident fund scheme, but also contribution to your child’s and spouse’s PPF account is also eligible for tax deduction under section 80C.
Please remember, you cannot open PPF account for your child or spouse but you can invest into it after they opened up in their name.
Interest accrued on your investments to public provident fund, is not liable to tax.
Secured long term investment
Public provident fund account is managed by central government even though the accounts are opened up in banks or post offices.
For this reason, it’s a secured investment which will give a predefined interest rate every year for the entire duration till maturity.
At the end of 15 years, you can also apply for extension of another 5 years. Tax benefits and other benefits will be extended for another 5 years.
Minimum and maximum ceiling limit
Unlike in fixed deposit or recurring deposit, in public provident fund investments you are not required to contribute a fixed amount every year.
A minimum of Rs. 500 and up to a maximum amount of Rs. 1,50,000 per PPF account can be deposited.
You are not required to contribute every month or quarter. The best part is, you can deposit it in one transaction or in more than one up to a maximum of 12 transactions in a year.
If you don’t make yearly payments, then with a penalty of 50 rupees per year of default, you can continue your PPF account.
Investments can be done in the name of minor
If you have a minor son or daughter then PPF account can be opened in his or her name by having you as a guardian.
You can start investing in his or her name to get a lump sum either for marriage or higher education.
As discussed above, you can also claim income tax deduction on the contribution to your minor son or daughter’s PPF Account.
Drawbacks of Public provident fund scheme
Like every investment plans public provident fund scheme has it’s own drawbacks.
Public provident fund investment is for a minimum period of 15 years. You can not withdraw the full money if you require it in urgent. Partial withdrawal is only allowed after a period of 5 years.
Loan can be claimed on your invested amount of PPF account. But, the problem is you cannot claim on the whole invested amount.
In many cases we found peoples are not keeping surplus money in hand to use for their urgent requirements and end up in looking for an alternative to withdraw money from PPF account.
Those who can afford to keep their surplus money invested for a period of 15 years should invest in public provident fund scheme.
A non resident Indian cannot open a public provident fund account in India but if they have already opened while being here, then they can continue investing in it till maturity.
With all these merits and demerits we feel that PPF scheme is a very good investment option for those who are looking for a long term investment plan.
Frequently Asked Questions on PPF
Who can open PPF account for minor child?
PPF account for minor child can be opened by a guardian. A guardian can be the child’s biological father or mother or any other legal person i.e. in case parents are not alive then uncle, ant, grandfather, grandmother etc can open PPF account for minor.
If parents are living but are incapable, then legal guardians can open public provident fund account for minor child.
Can I open PPF account for minor child after having one PPF account on my own name?
A resident individual can open one Public Provident Fund account in his or her name. When you as a guardian open a PPF account in your minor child’s name, you maintain it under the guardianship as a parent.
So there is no restriction that you can not open PPF account for your minor child if you already have one in your name. The answer to this question is YES, you can.
But either the mother or father can open PPF account for the minor child. Both can not maintain two accounts for their minor child.
Can guardian take tax benefits for the amount invested in PPF
The guardian will be eligible for tax deduction for the amount invested in both account i.e. his own and minor child’s PPF account.
As per section 80C, tax deduction limit for investing in own and minor child’s PPF account should not exceed the maximum amount of Rs. 1,50,000 along with other investments listed there in.