Invest in a PPF scheme to get tax benefits and risk-free returns

When it comes to investment avenues, there are market-linked investment avenues as well as fixed-income investment avenues. Market-linked avenues provide non-guaranteed returns while fixed income avenues do not depend on the market. They offer a fixed rate of interest irrespective of the volatility in the market. A PPF scheme is a fixed income investment avenue which is quite popular among investors. 

Let’s understand what this scheme is and how it gives you tax benefits and secured returns – 

What is a Public Provident Fund (PPF) Account?

A Public Provident Fund (PPF) account is an account which you can open with your bank. It is a long term savings account which helps you accumulate a guaranteed corpus through fixed interest incomes. The money that you deposit in the PPF Account continues to earn interest at a specified rate and when the account matures you get a lump sum corpus.

Public Provident Fund (PPF) Account eligibility

A PPF Account can be opened by resident Indian individuals. Hindu Undivided Families, companies or NRIs are not allowed to open a PPF Account in their names. Moreover, the PPF Account cannot be opened or operated on a joint basis. One account is allowed in the name of one individual only. 

How does the Public Provident Fund (PPF) Account work?

The PPF account can be opened with any bank. You need to make a minimum deposit of INR 500 to open the account. The maximum deposit which is allowed is INR 1.5 lakhs. Once opened, the account should be kept active by making at least one deposit in the account. You can make a deposit either in a lump sum or in instalments as per suitability. The deposits accumulated in the account earn interest which is determined and fixed by the Government of India. This interest rate is reviewed every quarter and can increase or decrease. Currently, till the quarter ending on 31st March 2020, the PPF interest rate fixed by the Government is 7.90% per annum.

Maturity and withdrawals 

The PPF Account has a fixed tenure of 15 years. This tenure can be increased by 5 more years if you want to stay invested. Once the tenure of the account comes to an end, the account matures and you can redeem it to avail a lump sum corpus. 

Partial withdrawals are permitted from the PPF Account before the account matures. Such withdrawals are allowed from the 7th year of deposit. The amount of withdrawal is limited to 50% of the balance of the PPF Account as at the end of the 4th year. One partial withdrawal can be done from the account in one financial year starting from the 7th year of opening the account.

Public Provident Fund (PPF) tax benefits 

As mentioned earlier, the PPF account is a tax-saving investment avenue. The Public Provident Fund(PPF) tax benefits which you can avail from your investments into the PPF scheme are as follows –

Public Provident Fund (PPF) tax benefits

• The amount of money invested into the PPF account is allowed as a deduction under Section 80C of the Income Tax Act, 1961. The maximum deduction allowed is limited to INR 1.5 lakhs
• If you make partial withdrawals from the PPF Account, the amount of withdrawal would also be allowed as a tax-free benefit in your hands.
• The fixed interest income that you earn on your PPF contributions is completely tax-free.
• When the account matures and you redeem the account, the accumulated balance which you receive from the investment is tax-free. You don’t have to pay any tax on the redemption proceeds from the PPF Account and you can get a tax-free corpus.

A Public Provident Fund (PPF) account is, therefore, a tax saving as well as a risk-free investment avenue. You should invest in the scheme for the benefit of availing fixed returns and also to lower your tax liability.