The Public Provident Fund (PPF) is one of the popular small savings schemes in India. It is a long-term investment option with a tenure of 15 years. This small savings scheme requires a minimum investment of Rs 500 and a maximum investment of Rs 1.5 lakh. This savings scheme facilitates tax savings as well as building a retirement corpus for a taxpayer.
The Government of India has recently notified the PPF interest rate of 7.9% for the quarter July-September 2019. The rate has been reduced from the prevailing interest rate of 8%. The return or interest on PPF is compounded annually at the rate specified above. Here’s a look at the corpus you can accumulate by opening a PPF account at the current compounding rate of 7.9%:
- If you invested Rs 1,000 per month translating to Rs 12,000 per year, up to 15 years, you would receive Rs 3.5 lakh upon maturity at the end of 15 years
- If you invested Rs 2,000 per month translating to Rs 24,000 per year, up to 15 years, you would receive Rs 7 lakh upon maturity at the end of 15 years
- If you invested Rs 5,000 per month translating to Rs 60,000 per year, up to 15 years, you would receive Rs 17 lakh upon maturity at the end of 15 years
- If you invested Rs 10,000 per month translating to Rs 1,20,000 per year, up to 15 years, you would receive Rs 35 lakh upon maturity at the end of 15 years
The above examples show that investment in PPF is rewarding financially as compared to term deposits or fixed deposits with banks. The rate of interest for long-term fixed deposits with banks are lower than 7.9% as well as taxable and subject to tax deduction at source (TDS) for annual interest above Rs 40,000. In contrast, the investments, returns, and maturity proceeds in case of PPF enjoy exempt-exempt-exempt status.
The investments made by a taxpayer annually are entitled to a tax deduction under Section 80C up to a maximum of Rs 1.5 lakh. The returns received in the form of interest earned on the balance in your PPF account are also exempt from tax.
Lastly, the amount received on maturity of the PPF account at the end of 15 years is also exempt from tax. Here, the period of 15 years is calculated from the end of the financial year in which the PPF account is opened. For example, if you opened a PPF account on 1 August 2019, your PPF account will mature as on 31 March 2035.
The annual investment limit of Rs 1.5 lakh is for all your investments made including the investments made towards a minor’s account. Also, you can make the investment either once in a year or monthly up to a maximum of 12 instalments.
A PPF account can be opened with a post office or a nationalised bank or even certain private banks such as ICICI, HDFC, and Axis Bank. Further, the investment or deposits in PPF account can be made by way of cash, cheque, demand draft, or through an online transfer of funds. There are certain other conditions attached to the pre-mature withdrawal of funds as well as availing a loan against the PPF account balance.
I am a Chartered Accountant by profession. I specialise in personal taxes and corporate income tax matters. I am an avid reader and track developments in financial markets, economy and other market developments.