1 min read.Updated: 25 Oct 2020, 06:42 AM ISTAvneet Kaur
Once you compete the lock-in period of 15 years, PPF allows you to extend in blocks of five years
You can avail the extension with or without further deposits into the PPF. Deposits qualify for tax benefits u/s 80C
PPF or Public Provident Fund is a very good product for the long-term fixed income part of your portfolio. It is government backed, and comes with a EEE taxation benefit which means the capital, interest and maturity are tax free. It is one of the most preferred fixed income investment options to save taxes under Section 80C but for the long maturity period of 15 years. We often hear concerns about the liquidity in PPF. However if you start investing at a young age or as soon as you start earning, you can complete the lock-in period of 15 years much earlier than your retirement. What next? How does it make PPF a good investment? Read on for details.
For an instance you start investing in PPF at an age of 23, you will complete the 15-year period at an age of 38 itself. Once you compete the lock-in period of 15 years, PPF allows you to extend in blocks of five years. In the above example, if you don't need the money for any of your goals at 38, you can extend it for another five years till 43 years of age. Again, if you don't need the money at 43, you can extend it further for five years and so on.
The icing on the cake is you can avail the extension with or without further deposits into the PPF. As per the current taxation laws, your contributions during the extension period will continue to be eligible for deduction under Section 80C of the Income Tax Act.
And if the extension is opted without any further contributions, the sum will continue to earn interest.
The investor must inform about extension within one year of maturity of the PPF account to enjoy the benefits during extension.
PPF currently offers an interest rate of 7.1%, compounded yearly. Maturity value can be retained without extension and without further deposits also.
There is no minimum age defined for investment in PPF. A PPF account can be opened in the name of a minor as well by the parent. A citizen can have only have one PPF account and the maximum investment allowed during a financial year is ₹1.50 lakh. In case of a minor, the total contribution in the parent's account and minor's account cannot exceed ₹1.50 lakh.