What is Public Provident Fund (PPF)
The PPF account or Public Provident Fund scheme is one of the most popular long-term saving-cum-investment products, mainly due to its combination of safety, returns, and tax savings.
The PPF was first offered to the public in the year 1968 by the Finance Ministry’s National Savings Institute. Since then it has emerged as a powerful tool to create long-term wealth for investors.
Investors use the PPF as a tool to build a corpus for their retirement by putting aside sums of money regularly, over long periods of time (PPF has a 15-year maturity, and the facility to extend the tenure). With its attractive interest rates and tax benefits, the PPF is a big favorite with a small saver.
Importance of a Public Provident Fund Account
A Public provident fund scheme is ideal for individuals with a low risk appetite. Since this plan is mandated by the government, it is backed up with guaranteed returns to protect the financial needs of the masses in India. Further, invested funds in the PPF account are not market-linked either.
Investors can also undertake the public provident fund regime to diversify their financial and investment portfolios. At times of downswing of the business cycle, PPF accounts can provide stable returns on investment annually.
Features of a PPF Account
- Minimum deposit ₹ 500/- & Maximum deposit ₹ 1,50,000/- in a Financial year.
- Loan facility is available from 3rd financial year upto 6th financial year.
- Withdrawal is permissible every year from 7th financial year.
- Account matures on completion of fifteen complete financial years from the end of the year in which the account was opened.
- After maturity, account can be extended for any number for a block of 5 years with further deposits.
- Account can be retained indefinitely without further deposit after maturity with the prevailing rate of interest.
- The amount in the PPF account is not subject to attachment under any order or decree of a court of law.
- Deposit qualifies for deduction under Sec.80-C of I.T.Act.
- Interest earned in the account is free from Income Tax under Section -10 of I.T.Act.
PPF Interest Rates in last 25 Years
| Year | Interest Rate |
| 01.04.1999 TO 14.01.2000 | 12.0% |
| 15.01.2000 TO 28.02.2001 | 11.0% |
| 01.03.2001 TO 28.02.2002 | 9.5% |
| 01.03.2002 TO 28.02.2003 | 9.0% |
| 01.03.2003 TO 30.11.2011 | 8.0% |
| 01.12.2011 TO 31.03.2012 | 8.6% |
| 01.04.2012 TO 31.03.2013 | 8.8% |
| 01.04.2013 TO 31.03.2016 | 8.7% |
| 01.04.2016 TO 30.09.2016 | 8.1% |
| 01.10.2016 TO 31.03.2017 | 8.0% |
| 01.04.2017 TO 30.06.2017 | 7.9% |
| 01.07.2017 TO 31.12.2017 | 7.8% |
| 01.01.2018 TO 30.09.2018 | 7.6% |
| 01.10.2018 TO 31.06.2019 | 8.0% |
| 01.07.2019 TO 31.03.2020 | 7.9% |
| 01.04.2020 TO 31.12.2025 | 7.1% |
Principal Amount
A minimum of Rs. 500 and a maximum of Rs. 1.5 Lakh can be invested in a provident fund scheme annually. This investment can be undertaken on a lump sum or installment basis. However, an individual is eligible for only 12 yearly installment payments into a PPF account.
Investment in a PPF account has to be made every year to ensure that the account remains active.
Loan Against Investment
- At any time after the expiry of one year from the end of the year in which the initial subscription was made but before expiry of five years from the end of the year in which the initial subscription was made, the account holder may, apply in Form-2, to the accounts office for obtaining a loan consisting of a sum of whole rupees not exceeding twenty-five per cent.of the amount that stood to his credit at the end of the second year immediately preceding the year in which the loan is applied for.
- In case of an account opened on behalf of a minor or a person of unsound mind, the guardian may apply for the loan for the benefit of the minor or the person of unsound mind by submitting the following certificate to the accounts office, namely:-
“Certified that the amount sought to be withdrawn is required for the use and welfare of Shri/Smt./Master/ Kumari……………………………. who is a minor/ a person of unsound mind/ a person incapable of operating his account due to physical infirmity and is alive on this……the day of…………..(month), ……….(year).”. - An account holder shall not be entitled to get a fresh loan so long as earlier loan has not been repaid in full together with interest thereon.
- An account holder shall be entitled for only one loan in a year.
Eligibility Criteria
Indian citizens residing in the country are eligible to open a PPF account in his/her name. Minors are also allowed to have a Public provident fund account in their name, provided it is operated by their parents.
Non-residential Indians are not permitted to open a new PPF account. However, any existing account in their name remains active till the completion of tenure. These accounts cannot be extended for 5 years – a benefit available to Indian residents.
How to Open a PPF Account?
Both offline and online procedures are available for an individual provided he/she meets the requisite parameters mentioned in the eligibility criteria. Activating PPF online can be done by visiting the portal of a chosen bank or post office.
The following documents have to be produced at the time of activation of a public provident fund account –
- KYC documents verifying the identity of an individual, such as Aadhaar, Voter ID, Driver’s License, etc
- PAN card
- Residential address proof
- Form for nominee declaration
- Passport sized photograph
PPF – Tax Benefits
Income tax exemptions are applicable on the principal amount invested in a PPF as an account. The entire value of the investment can be claimed for tax waiver under section 80C of the Income Tax Act of 1961. However, it should be kept in mind that the total principal that can be invested in one financial year cannot exceed Rs. 1.5 Lakh.
The total interest accrued on PPF investment is also exempt from any tax calculations.
Therefore, the entire amount redeemed from a PPF account upon completion of maturity is not subject to taxation. This policy makes the public provident fund scheme attractive to many investors in India.
Withdrawal
- Any time after the expiry of five years from the end of the year in which the account was opened, the account holder may, avail withdrawal by applying in Form-2, from the balance to his credit, an amount not exceeding fifty per cent. of the amount that stood to his credit at the end of the fourth year immediately preceding the year of withdrawal or at the end of the preceding year, whichever is lower:
Provided that the amount of loan outstanding, if any, along with interest shall be paid by the account holder before availing the facility of withdrawal under this paragraph:
Provided further that the facility of withdrawal may be availed only once in a year only from the accounts which have not become discontinued. - In case of an account opened on behalf of a minor, or a person of unsound mind, the guardian may apply for the withdrawal for the benefit of the minor or a person of unsound mind by submitting the following certificate to the accounts office
Loan Against PPF Scheme
- Between the third and fifth years of your PPF account, you can take out a loan.
- The loan amount can be no more than 25% of the second year immediately preceding the loan application year.
- If the first loan is entirely repaid, a second loan can be taken out before the sixth year.
Procedure to Withdraw PPF Money
The procedure for withdrawing from a PPF
If you want to withdraw some or all of the money from your PPF account, you can do so.
Step 1: Complete the application form (Form C) with the necessary information.
Step 2: Submit the application to the bank branch where your PPF account is located.
What is Form C
Section 1
It is a declaration section in which you must submit your PPF account number as well as the amount of money you wish to withdraw. Along with that, you must state how many years have passed since the account was first opened.
Section 2
It is about office use and includes information such as:
- The date on which the PPF account was opened.
- The total balance in the PPF account.
- The date when the previously requested withdrawal was granted.
- The total amount of withdrawals available in the account.
- The amount of money that has been authorized for withdrawal.
- The signature and date of the person in charge – generally the service manager
Section 3
it requests information about the bank where the funds are to be credited directly or the bank in whose favour the cheque or demand draught is to be issued. It is also required to include a copy of the PPF passbook with this application.