What is PPF account and Benefits of PPF Account

What is PPF account?

PPF account means Public Provident Fund Account on which regular interest is paid. Any individual in India can open PPF account and earn tax free return. 

Where and how open PPF account?

PPF account can be opened in any Post office, State Bank of India; some authorized branches of other banks. Banks allows online deposits in your PPF account but Post office don’t provide such facility.

Procedure to Open PPF account: - You have to submit PPF account Opening form along with two passport size photo, PAN number and Address proof.

Amount to be deposited:-

An individual can open account with Rs. 100/- but has to deposit minimum of Rs. 500/- in a financial year and maximum amount that can be deposited is Rs. 1,50,000/- in a financial year.

If a PPF account holder does not deposit Rs. 500/- in a financial year, a penalty of Rs. 50/- each year would be levied.

Interest in PPF account:-

The PPF interest rate is 8.7% for current financial year 2015-16.

Interest on PPF account is computed on a monthly basis depending on lowest balance in PPF account between 5^th and end of the month. If you deposited after 5^th of the month, you will not earn any interest on such amount since your lowest monthly balance would be on 5^th. Therefore, it is advised to deposit before 5^th of every month to earn maximum interest on such deposit.

Tenure of PPF account:-

Maturity period of PPF account is 15 years. On the expiry of 15 years, account holder can also apply for the extension of duration within one year of maturity for further 5 years and so on. 

There is lock-in period of 5 years and an account holder can withdraw money after 5 years.

Loans on PPF account:-

Loans facility available from 3^rd financial year. Amount of such loans must not exceed 25% of the amount stood to the account holder’s credit at the end of the second year.

Tax benefits:-

Tax benefit is available for both the principal amount and interest. The amount deposited in PPF account can be claimed as a deduction from Gross Total Income under section 80C at the time of filing of Income Tax Return. The interest on PPF account is also exempted from the levy of income tax.