Amongst all investment avenues, Public Provident Fund is the most sought-after one. There are many reasons for it the biggest being its EEE status. EEE is short for Exempt-Exempt-Exempt i.e. the principal amount at the time of investment, the returns and the total corpus at maturity all are tax-free or tax-exempted. This is the obvious reason which attracts so many people to make PPF contribution. Apart from this, there are other facts also which make PPF a favorite one;
- Calculation of maturity date
Like other investment avenues wherein the date of maturity is calculated from the date of investment, for a PPF account the date of maturity is taken at the end of the fiscal year in which investment or deposit is made. The date or month are not taken into consideration.
For example, you started your PPF account and made the first contribution on 11th July 2017, the date of the 15-year lock-in period will be calculated as on 31st March 2018.
- Total contribution and Number of contributions
A minimum of Rs. 500 and maximum Rs. 1.5 lacs are permitted in a given financial year. Even if the investments are made in installments or a lump sum amount, it cannot exceed 12 for a given year.
For the number of contributions, in tenure of 15 years, you will make in total 16 contributions (adding contributions of first and last year both) and as far as monthly contributions are concerned, you will be doing 192 contributions in the total tenure on monthly basis.
3. Interest calculation
The interest for every month is calculated as the minimum between the 5th of that month till month end. It is advisable to make PPF contributions before 5th. In case you are depositing cheque, make sure the bank processes it before 5th.
For lumpsum investments, making a contribution before the 5th of April for the given fiscal year is recommended.
Note: Any investment above the maximum limit does not fetch any interest.
Only resident Indians are eligible to open a PPF account individually. There is no provision for joint operation of a PPF account. In case of a minor, the account can be held with a guardian who can only be the father or mother of the minor not both or a court-appointed guardian only.
Note: Grandparents cannot open a PPF account on behalf of their minor grandchild. This can only be the case if both parents have died.
5. Premature closure
In order to close the account prematurely, you have to complete at least 5 years. Premature closure is subject to terms and conditions.
As mentioned earlier, PPF is an EEE statured investments vehicle which is the highlight of it. While you file your ITR, you need to mention a PPF withdrawal if any.
Also, the PPF account is exempted from wealth tax.
7. Penalty default
A failure to contribute a minimum of Rs. 500 per year will lead to account inactivation. A Rs. 50 per year inactive penalty is imposed in order to reactivate the account plus a minimum contribution of Rs. 500.
8. Discontinued account
There is a difference between inactive and discontinued account. If you have discontinued your account, you will not be able to take a loan or make a withdrawal until you revive the account. But your account is eligible for receiving the interest as applicable.
You can make a nomination with respect to your PPF account. You can nominate a minor as well.
However, in case the account is opened on the behalf of a minor, no nomination is allowed.
A 5-year block extension is allowed upon maturity. There is no limit on the number of extensions being availed. However, you have to avail the extension within a year of maturity. The account will earn interest as per current rates even if no contributions are made further.
Note: During the extension period, only one withdrawal is allowed which should not exceed 60% of the total balance as on start of the block.
You can transfer your PPF account within bank branches, from the post office to banks and vice-versa. The banks should be government approved.