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Interesting facts about PPF that can help you

There are a few things about the PPF that not many people are aware of. Having said that, here are some lesser-known facts about the PPF that can help you make a more informed investment decision. Team RetyrSmart

Interesting facts about PPF that can help you

Public Provident Fund or PPF is one of the most popular investment instruments in the country and is an absolute hit among the salaried class. One of the key reason why it is so popular is due to tax-free returns and steady interest income. While the interest rate has dipped to 7.6 per cent in 2018, it is still an ideal investment tool; the only tool which has hardly any risks attached to it.

As it falls under the Exempt-Exempt-Exempt or EEE category, there are absolutely no taxes on investment. Having said that, there are many ancillary rules with regards to PPF that people often overlook. From maturity date determination to the importance of depositing PPF contribution before the fifth of every month, here are seven lesser-known facts about PPF that will help you in the long run:

Minimum and Maximum contribution: According to PPF rules, the minimum yearly contribution one can make is Rs 500 while the maximum scales up to Rs 1.5 lakh. It is one of the cheapest fixed deposit schemes in the country. Worth mentioning that no deposits can exceed Rs 1.5 lakh on a yearly basis. Subscribers can choose to either make a lump-sum contribution or on a monthly basis.

The number of annual contributions during tenure: It may be noted that if you make PPF subscriptions on an annual basis, you will be making 16 contributions in total, not 15. For example, the first deposit you pay will be counted from the end of that financial year. So, suppose you open an account of March 18, 2012, and make a deposit. It will be taken as your first contribution, following which 2013-14 will be counted as the second year and 2014-15 as the third. So the last contribution you will make for the year 2027-28 will be the 16th contribution.

Maturity date determination: Many individuals are often confused about the maturity date of a PPF. While it comes along with a lock-in period of 15 years, the maturity date is not calculated from the date of opening the account. As per PPF norms, the maturity date is determined from the end of the financial year in which the initial deposit was made, and the month and date of the account opening do not matter.

For instance, if you had opened a PPF on May 18, 2012, it will mature on April 1, 2028. While the lock-in period is 15 years, the maturity period will be calculated from March 31, 2013.

Loans, partial withdrawals during tenure: While PPF has got a lock-in period of 15 years, it does offer the option to partially withdraw funds. It may, however, be noted that the availability of loans and withdrawals are subject to a few conditions such as PPF balance and the number of years completed.

PPF ownership: People still get confused over how a PPF account can be owned. It may be noted that a PPF account cannot be co-owned, with the only exception being a minor-A child is eligible to open a PPF account along with either parent. It should be noted, however, that a grandfather or grandmother cannot act as guardians of the child and cannot open a PPF account on behalf of their grandchildren, apart from an extreme situation like the death of both parents.

While a person cannot open more than one PPF account, an account opened on behalf of a minor will be treated as a different account. Worth mentioning that non-residing individuals (NRI), Hindu Undivided Families (HUF) of a body of individuals cannot invest in PPF.

Worth mentioning that the interest rate charged on a loan taken during a PPF tenue is more than 2 per cent of the interest earned on the scheme. When the principal is repaid, it is credited to the PPF account holder and the interest paid on the loan is accrued to the government.

However, you do not need to follow the above procedure of loaning money from the seventh year as you become eligible to withdraw. However, after becoming eligible for withdrawal, a subscriber will not be able to loan. Worth mentioning that only one withdrawal is possible during the course of a financial year.

Taxation: Since PPF comes under the EEE status, any withdrawals made before the expiry of lock-in period is exempted from tax. However, you are required to declare that you have withdrawn from PPF while filing your income tax returns.

There are many other rules pertaining to PPF but these are a few which will help you get familiar with the lesser known facts about the popular fixed-deposit scheme.

Can you close account prematurely: Another question that is frequently asked is whether premature withdrawal is possible in case of PPF. Customers should note that the facility is only allowed in certain cases and does come along with conditions. It may be noted that to be eligible for premature closure of the account, you must maintain the account for at least five financial years.

Is there any kind of taxation: Since PPF falls under the 'exempt exempt exempt' category, any withdrawals made before the expiry of the lock-in period is exempted from tax. However, it is a must to declare the amount you have withdrawn while filing your income tax returns. ............