What does PPF stand for in economics?

Public Provident Fund or PPF is one of the most popular investment avenues used by Indians to save and grow their money for retirement. After all, the money invested is guaranteed by the Government of India, there are tax benefits and the profits from it are tax-free. In this article, I will summarize several features of a PPF account and highlight some additional details that investors may find useful.

Taxation

PPF comes with EEE or exempt-exempt-tax status. This means that a) is entitled to receive tax benefits under section 80C of the Income Tax Act, b) all interest earned in this account is tax-free and c) all maturity proceeds are exempt from any capital gains or wealth tax.

Maturity period

The maturity of PPF is 15 years. However, this maturity date is not calculated from the date of account opening but from the end of the financial year in which the deposit was first made.

PPF account extension

Once the PPF account matures at the end of 15 years, the account holder has the option to extend the maturity in blocks of 5 years. These extensions can be done any number of times. During this extension period, the PPF account will continue to earn the prevailing rate of interest.

Contribution amount

PPF rules require a minimum contribution of Rs 500 per year and allow a maximum contribution of Rs 1,50,000 in a financial year. The government usually changes the maximum contribution limit every few years.

Eligibility

Any Indian citizen can open a Public Provident Fund account in his own name. In addition, a person can also open an account on behalf of a minor or a person of unsound mind of whom he is a guardian. However, the rules do not allow joint account or HUF or NRI to open a new PPF account

PPF account for minors

PPF account can be opened by the parent on behalf of the minor. In terms of contribution, the maximum permissible limit of 1.5 lakh is an aggregate limit i.e. it includes the contribution of the subscriber and the minor for whom the subscriber is the guardian

Interest Rate and Calculations

Public Provident Fund is a fixed income asset class and the account holders get interested at the rate prescribed by the Government of India. The current rate is 7.1%. PPF interest is calculated every month from the 5th of the month to the end of the month on the basis of the minimum balance of the month.

Partial Withdrawals

PPF subscribers are allowed to make premature or partial withdrawals after the full five financial years. These premature withdrawals come with certain conditions like a limit of 1 withdrawal per financial year, no loan is allowed against PPF balance and a withdrawal limit of 50% on the previous year's balance. Withdrawal rules are slightly different for extended PPF account

PPF account closure

After maturity one can close the PPF account or post the extension period by submitting an application to the bank or post office in which the account is held. However, if you want to close your PPF account prematurely, then certain conditions have to be followed and 1% is deducted on the interest calculation.

Loan Against PPF

PPF customers are eligible to take a loan against their account balance between the third and sixth financial years. This loan amount is limited to a maximum of 25% of the closing balance of the last two years. These loans are charged 1% more than the existing PPF interest rate

Court Decree or Attachment

A court order or decree cannot be linked to the PPF account and its balance cannot be accessed by the lenders for payment of debt or liability. However, this rule does not apply to Income Tax Officers.

Opening a PPF Account

An individual can open only one PPF account. If a customer accidentally opens more than one account, the additional account will be treated as irregular and will not attract any interest or tax benefit. Opening a PPF account is very easy and many banks are doing it online with a minimum contribution of Rs 500 only.

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