If you are looking for an investment which fetches you an assured return, higher than term deposits, with minimal or no risk of loss of investment, then you can consider investing in Public Provident Fund (PPF). Public provident fund is one of the permissible investments under Section 80C of the Income Tax Act. Any resident individual (whether employed or otherwise) is entitled to open this account with any nationalised bank, selected authorised private bank or post office. The intricacies of this mode of savings have been articulated in this article

Cap on Contribution:

The minimum amount that is required to be deposited by an individual in a financial year in his/her Public Provident Fund Account is Rs. 500 whereas, the maximum amount that can be deposited in a financial year is Rs. 1.5 lakhs.

In the event, the account holder fails to contribute the minimum amount of Rs. 500 per year once the account has been opened, then such account shall be deactivated. In order to re-activate the account, the holder needs to pay an amount of Rs. 50 as penalty for each ‘inactive’ year. Additionally, the account holder needs to deposit Rs. 500 for each inactive year as that year’s contribution.

Rate of interest:

The investment in PPF currently earns interest at the rate of 7.6% per annum compounded annually (w.e.f. 1^st January 2018). The interest is credited to the account on the 31^st of March every year.

Period of investment and Pre-mature withdrawal:

Once an individual opens a PPF Account and starts depositing amounts therein, the amounts so introduced cannot be withdrawn before the end of 15 years, except in the manner and to the extent specified below:

1. Pre-mature withdrawal can be made from the start of the 7^th Financial year
2. Maximum amount of withdrawal = 50% of the amount that stood in the account at the end of the 4^th year preceding the year in which the amount is withdrawn or the end of the preceding year, whichever is lower.

On the expiry of 15 years, the individual may, if he/she so desires, extend the period by a further period of 1 or more blocks of 5 years each

Pre-mature closure:

Pre-mature closure of PPF account of an individual is permitted only after the completion of 5 years for either – the medical treatment of family members or for higher education of the account holder. The penalty for premature closing would be loss of interest rate upto 1%.

Tax Savings:

The following series shows the amounts that an individual can save by way of contribution to Public Provident Fund, depending on the Income tax slab rates applicable to him/her (Assuming there is no other tax saving investment made by the individual):

• If taxpayer is in 10% tax bracket and invests entire Rs. 150,000 in PPF, tax savings shall be Rs. 15,600
• If taxpayer is in 20% tax bracket and invests entire Rs. 150,000 in PPF, tax savings shall be Rs. 31,200
• If taxpayer is in 30% tax bracket and invests entire Rs. 150,000 in PPF, tax savings shall be Rs. 46,800

Exemption on withdrawal:

There would be no tax implications in the hands of the individual on receipt of money on maturity. The interest earned on the amounts contributed to the PPF account is exempt from tax under Section 10(11) of the Income Tax Act, 1961.

Can NRIs invest in PPF?

The position on investment into PPF by non-resident Indians has undergone changes over the recent years. As per the latest notification, NRIs cannot open a new PPF account. Further, they can continue to hold on to their PPF account that was open while they were residents and the investment will earn them the same rate of interest as that of a resident. [Position as on May 2018 – please refer to the link here]

The notification issued on October 3, 2017 (which mandated a deemed closure of PPF accounts and a lower interest rate of 4%) has through this office memorandum, been kept in abeyance. We shall keep you updated of any change in this respect.

If you have any further questions on PPF, please do not hesitate to reach out to us on pavan@bclindia.in. We would be glad to be of your help.