Why you need a PPF account1 min read . Updated: 18 May 2019, 08:48 AM IST
- In a financial year, you can invest up to ₹1.5 lakh and get tax benefit on it
- An investment in PPF is eligible for tax benefit under Section 80C of the Income Tax Act
WHAT IS IT?
Public Provident Fund (PPF) is a small savings instrument offered by the Government of India.
In a financial year, you can invest up to ₹1.5 lakh and get tax benefit on it. The minimum amount you can deposit is ₹500.
An investment in PPF is eligible for tax benefit under Section 80C of the Income Tax Act. You can make investment either lump sum or monthly. PPF has a 15-year tenure and you can extend it by 5 years after the 15th year. You need to be a resident of India to open the account. You can also open the account in the name of a minor.
INTEREST RATE AND PENALTY
The rate of interest is determined by the central government every quarter. Currently, it is 8% per annum. The interest is calculated on the minimum balance between the 5th day and end of the month and is paid on 31 March every year. You can take a loan against PPF. If you want to transfer the account, it is possible and you don’t have to pay any fee. Premature withdrawal is allowed only after five years in case of treatment of medical emergency and higher education. In case you don’t make an instalment in a financial year after opening a PPF account, you will have to pay a penalty.
PPF is a debt instrument and also comes with a tax benefits, which is one of the reasons you may want to opt for it.
It can also come in handy when you have to save up for a big spend. You could consider opening a PPF account for a long-term goal, such as your child’s education, down payment on a house, prepayment of a loan you have taken or retirement.
The power of compounding will help you grow your money. To get the most out of your PPF investment, start investing at the beginning of the financial year. It will help you reap the benefit of compounding.