Complete Guide to Public Provident Fund (PPF)
In a volatile financial world, the Public Provident Fund (PPF) stands as a fortress of safety. Backed by the Government of India, it offers guaranteed returns that are completely tax-free.
What makes PPF special?
PPF falls under the EEE (Exempt-Exempt-Exempt) category of taxation in India:
- Investment is Tax Exempt: You get tax deduction u/s 80C for the amount you invest (up to ₹1.5 Lakh).
- Interest is Tax Exempt: The interest earned every year is not taxed.
- Maturity is Tax Exempt: The final amount you withdraw after 15 years is fully tax-free.
Key Rules You Must Know
- Tenure: The account matures after 15 full financial years. You can extend it in blocks of 5 years indefinitely.
- Investment Limits: Minimum ₹500 and Maximum ₹1.5 Lakh per financial year. Investing more than 1.5L will not earn interest.
- Deposit Frequency: You can deposit in lump sum or installments (max 12 per year used to be the rule, now flexible).
How to Maximize Your Interest?
This is a secret many investors miss. Interest in PPF is calculated on the lowest balance between the 5th and the last day of the month.
Tip: Always deposit your PPF contribution before the 5th of the month. If you deposit on the 6th, you lose interest for that entire month!
Premature Withdrawal
While PPF is a 15-year scheme, liquidity is available:
- Partial Withdrawal: Allowed from the 7th financial year.
- Loan: You can take a loan against your PPF balance between the 3rd and 6th year.
- Premature Closure: Allowed after 5 years only for specific reasons like medical treatment or higher education.