Public Provident Fund is a popular long-term savings scheme that also incorporates the feature of tax saving. It is a profitable investment option to plan one’s retirement. As a government-backed savings scheme, PPF is an ideal, financial instrument that offers beneficial returns on investment over a long period of time.
The PPF account comes with a lock in period of 15 years and the full amount of PPF can be withdrawn after the completion of maturity period. Although, one can extend the tenure of the account for 5 years, the entire amount withdrawn is entirely tax exempted including the interest amount as well. The interest rate of PPF is reset on the quarterly basis. Currently the effective interest rate of PPF from January 1st 2018 is 7.6% per annum. While the rate of interest keeps changing, the risk factor remains stable.
PPF guarantees savings by offering a low risk investment combined with tax benefit and profitable returns.
The PPF rate of interest is compounded annually. For the better understanding of our readers, we have shown the interest rates of past few years in a tabular form below.
|Time Period||Interest Rate|
|01 Dec 2011-31st March 2012||8.60%|
|01 April 2012- 31st March 2013||8.80%|
|01 April 2013- 31st March 2014||8.70%|
|01 April 2014- 31st March 2015||8.70%|
|01 April 2015-31st March 2016||8.70%|
|01 April 2016- 31st March 2017||8.00%|
|01 April 2017- June 30th 2017||7.90%|
|01 July 2017- December 31st2017||7.80%|
|01 January 2018- Ongoing||7.60%|
How to Calculate the PPF Rate of Interest?
An individual can calculate the PPF interest amount based on the lowest balance in the account of an individual between 5th to the last day of each month. So, if one wants to deposit a large amount during any time of the year, then he/she needs to ensure that the amount is invested on or before the 5th of a particular month, so that a higher interest amount is generated for the whole month.
The interest rate for a financial year is generally similar from April 1st of a year to March 31st of the forthcoming year. One can contact the post office branch or bank to check the current status of one’s PPF account. Moreover, an individual can also link their PPF account to their savings bank account and can access various facilities like checking the interest rate on PPF, tracking the account status and making payments online for PPF loans.
Early Closure of PPF Account
Premature closing of PPF account is applicable only under particular conditions like expenses towards the higher education of the child or medical treatment. However, the premature closing is allowed only after the completion of five financial years.
Income Tax Exemptions
PPF is a well-known tax saving investment instrument that has an EEE status i.e. exempt, exempt and exempt. This means that the amount contributed towards the PPF account, the maturity proceeds, and interest are all tax exempted under section 80C of Income Tax Act. Moreover, one can claim a tax exemption of up to the maximum limit of Rs 1 lakh 50 thousand, under section 80C of Income Tax Act.
PPF Partial Withdrawal
After the completion of seven financial years from the date of opening a PPF account, partial withdrawals are permissible every year. The partial withdrawal can only be made provided that the amount withdrawn should not exceed 50% of the balance. In a financial year, only one withdrawal can be made by an individual.
Loan Facility Offered by PPF
A PPF account holder can get the benefit of a loan facility after the completion of the 3rd financial year. One can take a loan of up to 25% of the balance in the account. If one repays the loan within 36 months, then a 2% interest is charged over the prevailing PPF rate of interest. The loan facility can be availed 5 years after the PPF account was opened.
The Bottom Line!
PPF not only works as the safest long-term saving instrument, but the other incorporated benefits like tax saving, loan facility, partial withdrawals, etc. makes it a remarkably stable investment instrument. In case, you want to gain some more information about the mechanism, benefits and features of PPF, then you can visit the web aggregators like Policybazaar or you can tweet to Policybazaar’s twitter account.