PPF is a better investment option in the long term. Investing in it is not only safe, but it offers many benefits in tax exemption and there is no risk. But you should know some special things related to it.
The interest rate on PPF is not fixed but it is related to government bonds with a maturity period of 10 years. The interest rate does not change daily but is fixed at the beginning of every quarter. It is fixed based on the average bond yield of the last three months. It has steadily declined since the April-June 2019 quarter and is now down 7.1 per cent.
PPF account matures after 15 years. Once the account has matured, you can withdraw the entire amount and close the account. You can also extend it for 5 years.
For this, you can contribute or not. You can extend it several times for a period of five years. There is no limit to this, if you want to extend the accounting period to 5 years with a contribution, then you have to give an application to the post office or bank before the maturity period of one year is over.
After this, the account will be extended for 5 years. If you do not inform the bank or post office, then your account will be automatically extended. But it will not take that contribution.
Normal interest will be charged on the remaining amount and you can withdraw once in a financial year.
A 15-year tenure does not mean that your capital is stuck for a long time. The period of 15 years is from the day you opened your account and the lock-in period gradually decreases.
Only one year remains in the 14th year. If you opened a PPF account in 2006, the lock-in would end next year. After six years, you can withdraw 50% of the balance at the end of the four-year period or the previous year, whichever we are. If the account is not open for six years, then you can take out a loan for three to six years.
The loan amount can be up to 25% of the balance at the end of last year. It takes only 1 per cent interest annually and has to be repaid in three years. Until one loan is repaid, the investor cannot take another loan.
You can put at least 500 rupees and more than 1.5 lakh rupees in your account every year. Even after a period of 15 years, one should keep adding 500 rupees annually if the account is extended.
If you do not add 500 rupees every year, then your account will be deactivated. It will attract a fine of Rs 50 for activating it again and if you accidentally put more than 1.5 lakh rupees, then the additional amount will not get interested.
The maximum amount of 1.5 lakh rupees per annum also includes contributions to PPF accounts opened in the names of children.
PPF is an interest annually but is calculated every month. This interest is paid on the minimum balance between the 5th and the last date of every month. If you invest before the 5th, you will get interested in that month on the investment.
Otherwise, it will be like a one-month interest-free loan for the government. If you are investing by check, then deposit the check 3-4 days before the cut-off date.
If your bank shows slowness in crediting it to your PPF account then you will not get that month's interest on that investment.
The income tax exemption on the contribution of PPF is up to Rs 1.5 lakh under Section 80C. Interest on this is not taxed, but it is important to provide this information while filing your tax return.
Withdrawals from PPF are not taxed and this does not affect the tax liability of the taxpayer. There is no tax on the amount received on maturity.
To avail additional tax benefits, open a PPF account in the name of your wife or child. According to the tax laws, if the money gifted to the wife is invested, then the income from this investment is combined with the income of the gift giver. Since income from PPF is not taxed, the income tax liability of the gift giver does not matter. So you can invest 1.5 lakh rupees annually in it.
