One of the most preferred investment instruments in India is a Public Provident fund (PPF). A PPF is a government scheme. It is one of the favourite investment options for the salaried class and the professionals. Even after the drop of interest associated with PPF which currently stands at around 7.6%, it manages to be a hit investment vehicle. This is mainly because it hardly has any risk element associated with it. It offers stable that are entirely tax-free.
In terms of taxation, it comes under the EEE( Exempt- Exempt- Exempt ) category. This means that you do not have to pay any tax on your income generated from the public provident fund. To help you make a well-informed decision about whether or not you should invest in a PPF, we have enlisted a few unique and lesser-known PPF facts that you need to consider must.
PPF accounts cannot be attached:
A PPF account cannot be used for paying off any debt or liability. In any given scenario no one can take it away from you. No individual and no entity can attach your PPF to their account. This PPF assures that your hard earned money is safe in your account. Even in case of bankruptcy or winding up of a company, your account cannot be used for paying off your debts. The only exception to this law is that the Income Tax Department can, however, recover any pending dues from your PPF account.
Lock-in Period and Confusion regarding it:
There is a popular misconception about the lock-in period of a PPF account. Many think that the lock-in period is 15 years from the date of opening the account. However, it is a little different from this common notion. The date of calculation of fifteen years starts from the end of the financial year in which the first investment was made. For example, if you have invested on July 1, 2018, the calculation will start from March 31, 2019. According to this, your PPF will mature on April 1, 2034. It is crucial to keep this aspect in mind while making an investment in a PPF account and for planning your finances well.
You can choose annual or monthly investment option while the annual minimum and maximum investment limit remains the same in both cases. You can invest a minimum of INR 500 in a year into your PPF account, and the maximum investment can be up to Rs. 1.5 Lakhs according to present rules of Public Provident Fund. You can divide your investment into months, or you can make a lump-sum investment on a yearly basis. The thing to remember here is that if you are making an annual contribution, then you will be contributing a total of 16 times. This is because of the abovementioned point for maturity which starts from the end of the financial year of the first For example, you are making the first contribution on November 1, 2018, and the calculation of 15 years starts from March 31, 2019, and the PPF matures on April 1, 2034, so in total, you will be making 16 contributions.
Partial Liquidity Option:
There is partial liquidity facility associated with investment in a PPF account. However, it is subject to the completed number of years of the investment and few other specific conditions. One can withdraw or get a loan against this account. In the case of a loan, the interest rate is 2% of the amount of interest your account earns. The interest on the loan goes to the government while the principal on repayment of the loan goes back to the investor’s PPF account. After 7th year of investment, you can withdraw partially from this account. The number of withdrawal is limited to one in a single financial year. Once you have made a withdrawal, you cannot avail a loan against your PPF account. If you have an unpaid loan, you cannot apply for another loan against this account. You have to pay the loan in full including interest before availing another loan against PPF.
Due to the EEE categorisation, even if you withdraw from your PPF account before it matures, you do not need to pay any tax on the amount. A simple declaration about the withdrawal has to be made at the time of tax return filing.
Often people want to know whether or not they can nominate any family member or any other individual in their PPF account. According to the rules prevailing in India, an investor can nominate only a minor to his PPF account. If the account is already in the name of a minor, then there is no provision for making anyone else a nominee.
If you intentionally or unintentionally stop investing at the minimum amount in your PPF account annually it will be declared as a discontinued If the account is suspended, then you can only withdraw the invested amount on maturity along with interest that keeps on adding for the entire tenure on the available PPF balance. There will be a partial loan or withdrawal facilities available on the discontinued account. To avail such benefits, you need to pay the minimum subscription for the period of discontinuation and the penalty charges according to the PPF rules.
PPF Joint Account:
A PPF account cannot have joint ownership. However, an exception to this rule is that parents can open an account on behalf of their minor However, both parents cannot open a separate account; there is provision for only one account for one minor. A legal guardian can do the same in case the parents are not alive or cannot act. Once the minor becomes 18 years of age, he will become the owner of the account.
Extension after maturity:
Investors can extend the maturity of the account each time for a block of five This means you can add five more years to the PPF account at once and you can do it countless times. For those five years, you will earn interest; withdraw up to 60% of the amount in the account once a year and the extension must be applied for, before the actual maturity date.
Often people take investment decisions about PPF without knowing these facts which might lead to loss of money. It is better to note these points while making an investment in a PPF.