Post Office Public Provident Fund (PPF)

Public Provident Fund (PPF) is one of the most popular and favourite savings option for many investors for the reasons being,

• Principal invested as well as the interest earned have a sovereign guarantee
• Provides guaranteed and fixed rate of interest
• Offers returns which are absolutely tax-free as the interest earned is tax exempt
• Principal invested qualifies for deduction under Section 80C of the Income Tax Act, 1961
• Not a market-linked investment option

PPF was originated in 1968 under the Public Provident Fund (PPF) Scheme, 1968. Any resident citizen of India can invest in PPF and open his PPF account in a post office or an authorised bank. Public Provident Fund is considered to be the best debt option available after Employees Provident Fund.

Post Office Snapshot of PPF Account

Post Office Eligibility Criteria to Open PPF Account

Any individual, who is a resident Indian, can open a PPF account either in his own name or on behalf of a minor which means that PPF accounts can also be opened by parents for their minor children. The applicant can be a salaried employee, self-employed, businessman, professional or any other person.

There are some restrictions as mentioned below:

1. A person cannot open a joint account
2. One person can have only one account in his name
3. A Hindu Undivided Family (HUF) cannot open a PPF Account
4. PPF account cannot be opened by NRIs

Post Office PPF Maturity Period

The maturity period in PPF is 15 years, but one can extend the investment even after 15 years. At the time of maturity of PPF account, withdraw the amount deposited by you along with the accrued interest.

At the time of maturity you will get following 3 options.

1. Withdraw your money after maturity by submitting account closure form along with passbook at concerned post office/ bank branch
2. Do not withdraw your money after maturity, and continue earning interest
3. Extend it in the blocks of 5 years, if you wish, by submitting prescribed extension form at concerned post office/ bank branch

In case of you withdraw your money after maturity, your PPF account will be closed and the entire balance of your PPF account i.e. principal and interest will be transferred to your account.

One benefit in case of extending your PPF investment, is that the rule of pre-mature withdrawal does not apply at the time of extension and you can withdraw money anytime.

If you retain maturity value in your PPF account further without any more deposit, the PPF interest rate will be paid and payment can be taken any time or you can take one withdrawal in each financial year.

If you extend the account with deposits, 1 withdrawal can be taken in each FY subject to maximum limit 60% of balance credit at the time of maturity in the block of 5 years.

Post Office PPF Tax Benefits

1. Income tax exemption under section 80C of Income Tax Act is allowed on PPF investments up to Rs 1.50 lakh per financial year.
2. The interest earned on the PPF account is tax free.
3. The principal and interest received on maturity are completely tax free in the hands of investors which means that the whole amount you receive on maturity is completely yours.

Investment in Public Provident Fund (PPF) offers Exempt-exempt-exempt (EEE) tax benefit to the investors which means, the contributions made to PPF Account, the interest earned on the PPF account and the maturity proceeds of the PPF account are all tax exempted under Section 80C of Income Tax.

The interest earned on the PPF account should be mentioned on the income tax return.

Post Office PPF Investment Amount

Minimum deposit in PPF account is Rs.500 and maximum Rs.1.50 lakhs can be deposited in one PPF account every year. These deposits can be made either in lump-sum or in instalments. PPF account can be opened either by cash or cheque.

Here, it is important to note that in two different accounts (one in own name & another in minor child's name), the combined total investment in both the PPF accounts cannot exceed Rs.1.50 lakhs in a financial year. Deposits in PPF account qualifies for deduction under section 80C of Income Tax Act.

Post Office PPF Interest Rate

It offers one the highest rates of interest among all other general small saving schemes in India and the current interest rate on PPF account is 7.1% compounded annually w.e.f. 01.01.2024 to 31.03.2024. This interest rate is governed by Ministry of Finance from time to time. Interest will be credited to the PPF account at the end of each financial year. Interest earned is totally tax free under Income Tax Act.

Interest rate on PPF account will be applicable as notified by Ministry of Finance on quarterly basis.

Post Office PPF Loan Facility

When loan can be availed: Loan can be taken after the expiry of 1 year from the end of the FY in which the initial subscription was made.(i.e. A/c open during 2021-22, loan can be taken in 2022-23). Loan can be taken before expiry of 5 years from the end of the year in which the initial subscription was made.

How much loan can be availed: Loan can be taken up to 25% of balance to his credit at the end of the second year immediately preceding the year in which loan is applied. (i.e. if loan taken during 2012-13, 25% of balance credit on 31.03.2011)

How many times loan can be availed: Only one loan can be taken in a Financial Year. However, second loan will not be provided until first loan is repaid.

Interest on Loan: If loan repaid within 36 month of the loan taken, loan interest rate @ 1% per annum shall be applicable. If loan repaid after 36 month of the loan taken loan interest rate @ 6% per annum shall be applicable from the date of loan disbursement.

Discontinuation of Post Office PPF Account

PPF account discontinues, if in any financial year, minimum deposit of Rs.500 is not made. There will not be any withdrawal facility on discontinued accounts.

Revival of Discontinued Post Office PPF Account

Discontinued account can be revived by the depositor as detailed below,

1. PPF Account can be revived only before its maturity
2. It can be revived by depositing minimum subscription (i.e. Rs. 500) + Rs. 50 as default fee for each defaulted year

Important to note that the total deposit in a year should include the deposits made in respect of years of default of previous financial years.

Post Office PPF Premature Closure

Premature closure is allowed after 5 years from the end of the year in which the account was opened, if any of the following conditions is fulfilled.

1. In case of life threatening disease of account holder, spouse or dependent children
2. For higher education of account holder or dependent children
3. On change of residential status of account holder (i.e. resident individual becomes NRI)

If you close the account prematurely, 1% interest will be deducted from the date of account opening.