The Public Provident Fund (PPF) was established in India in 1968 to mobilize small savings in the form of investment and provide a return on it. It is also a tax-saving investment scheme because it allows one to save on annual taxes while building a retirement corpus.
What exactly is a PPF?
The Public Provident Fund (PPF) scheme is a long-term investment option that provides an attractive rate of return on investment. The interest and returns are not taxable under the Income Tax Act. Under this scheme, one must open a PPF account, and the amount deposited during the year is deductible under section 80C.
The Finance Ministry determines the interest rate every year, which is paid on March 31st. Every month, interest is calculated on the lowest balance between the fifth and last day of the month.
Significance of a Public Provident Fund account
1. PPF accounts are one of the best investment options for people with a low-risk tolerance.
2. PPF is a government-backed scheme with no market-linked investment. As a result, it provides guaranteed returns to protect many people’s investment needs.
3. PPF accounts are a diversification tool for an investor’s portfolio because their returns are fixed. Furthermore, they provide tax advantages.
How to Set Up a PPF Account
A PPF account can be opened at a Post Office or nationalized bank, such as the State Bank of India or the Punjab National Bank. These days, even private banks such as ICICI, HDFC, and Axis Bank, among others, are authorized to provide this service. You must submit the following documents:
1. Account opening application form duly completed
2. Aadhaar, Voters ID, driving license, and other KYC documents
3. Proof of residential address
4. Form for declaring a nominee
5. Photograph in passport size
After submitting these documents, you can deposit the required amount to open the account.
Who can make PPF investments?
1. Any Indian citizen can invest in PPF.
2. Unless the second account is in the name of a minor, each citizen can only have one PPF account.
3. NRIs or HUFs cannot open PPF accounts. However, if they already have a PPF account in their name, it will stay active until its completion date. However, unlike Indian nationals, these accounts cannot be extended for a period of five years.
What are the tax advantages of PPF investing?
PPFs are one type of investment vehicle that comes within the Exempt-Exempt-Exempt (EEE) category. In other words, all PPF contributions are tax deductible under Section 80C of the Income Tax Act. However, the maximum contribution to a PPF cannot exceed Rs.1.5 lakh in a single fiscal year.
Furthermore, at the moment of withdrawal, the accumulated sum and interest are tax-free. It should be noted that a PPF account cannot be closed before it reaches maturity. A PPF account, on the other hand, can be moved from one point of designation to another.
However, keep in mind that a PPF account cannot be canceled prematurely. Only in the event of the account holder’s death can the nominee request that the account is closed.
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