7 Questions to Ask before Opening a PPF Account

2024-08-02

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The PPF Act of 1968 introduced a government-run saving scheme known as the Public Provident Fund (PPF). In a word, the Public Provident Fund is a long-term modest savings scheme for the public sector. It was established to provide financial security to unorganised sector employees and self-employed people.

It's a high-return choice with a competitive interest rate and returns on capital. Underneath the Income Tax Act, the interests and returns earned aren't taxable. This plan necessitates the creation of a PPF account, with the amount contributed during the year claimed as a deduction under section 80C.

What are the 7 Questions to Ask while Considering to Open a PPF Account?

Investing in a savings plan or scheme is one of the crucial financial decisions. Having a significant amount of savings can help you protect your loved ones during rainy days. Given the degree of necessity for saving, the Government of India has various saving schemes to boost your savings game. Public Provident Fund is one such saving scheme by the Government that can help you to build your retirement corpus.

Here are 7 questions you should ask yourself before opening a PPF account:

1. How to open a PPF account?

You are only permitted to have one PPF online or offline account in your name at any one time throughout your lifetime. You can also open an account in the name of a minor kid or anyone you have parental or legal authority. But it will be the account of the child, and you will be the caretaker. Opening a shared account is not permissible.

You can open an account at a postal service or certain nationalized banks. Fill out the form, upload a photo, and mention your PAN number, and you're good to go. Following the completion of your requirements, you will be given a passbook that will record all of your Public Provident Fund transactions.

2. Can minors open a PPF account?

A juvenile cannot open a PPF account, although an adult can do it on his child's behalf as guardianship. A payment limit is determined if the guardian has a secondary PPF account as well as one in the child's name. In any of the accounts, the guardians cannot invest more than 1.5 lakhs per year.

3. Is it possible for an NRI to create a PPF account?

Non-resident Indians are not permitted to create a PPF account, according to a rule enacted on July 25, 2003. Being a resident of India is a requirement for opening a PPF account. A PPF account cannot be opened by a non-resident Indian. However, if an NRI had an about PPF account while staying in India, he might keep it. NRIs, on the other hand, are not permitted to open new PPF accounts.

4. What is the interest calculation of PPF?

The current interest rate on a PPF account is roughly 8.1 percent. In the case of a monthly contribution, interest is charged on the account's minimum balance from the 5th through the end of each month. In the event of an annual contribution, interest is calculated on a yearly basis on March 31st, i.e. when the fiscal year ends.

5. Is Tax Exemption on PPF?

In terms of income tax implications, PPF falls within the EEE (Exempt-Exempt-Exempt) group. This means that up to Rs. 1.5 lakh in PPF contributions can be deducted under Section 80C of the Income Tax Act. Second, both the interest generated on the principal amount and the maturity amount is tax-free. As a result, this may be a sufficient reason for people to choose PPF.

6. What happens when you don’t make contributions to PPF accounts?

An investor must make an annual investment of at least Rs. 500. In a given annum, a limit of Rs. 1.5 lakh can be placed in a PPF account. If the investor does not make the required annual contribution, the account will become dormant. To reactivate the account, submit a written request accompanied by an Rs.50 fine for every year the account has been dormant.

7. Can I Extend the Tenure of my PPF Account?

After completing their 15-year tenure, PPF account holders can prolong their tenure in blocks of 5 years. For the prolongation, the account holder must submit a completed Form H to the bank or post office. The interest rate for the extended term has not changed, and the amenities have not changed. The PPF scheme is one of the best tax saving plans in India.

Four Benefits of Public Provident Fund

1. The interest rate is assured but not defined

The PPF interest rate is not set but is tied to the return on 10-year government bonds. The value does not fluctuate everyday day but is set at the start of each quarter, given the average government bond over the previous three months.

2. Prolonged tenure

The PPF interest rate is not fixed, but it is linked to the 10-year government bond return. The value is established at the start of each quarter, based on the average government bond for the previous three months, rather than fluctuating day to day.

3. Extending with contribution

If you want to keep the money and pay it back, you must register at a Post Office or a bank well before the one-year period ends. The account will then be renewed for another five years.

4. Extending without contribution

If you do not tell the banking institution or the Postal Service, the account will automatically renew. It will not, however, accept donations. The money earns interest on a regular basis, and you may only take it out once a year.

Alternatively, you can also choose plans by Canara HSBC Oriental Bank of Commerce. Invest 4G ULIP and Guaranteed Savings Plan are saving plans that offer life cover along with an avenue for savings. You can choose a plan as per your retirement corpus and start your financial planning today.

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