Public Provident Fund

Last Updated : May 29, 2021, 12:49 p.m.

The PPF account is also known as the Public Provident fund and it is a type of scheme offered by the government. In this scheme, the individual contributes a certain sum of money for a period of 15 years every month and enjoys a great return on it. On the other hand, the contribution can be as low as INR 500 per year. The PPF contribution has a lock-in period of 15 years but this saving scheme allows the account holder to make partial withdrawals from the seventh year of contribution. One can also take a loan against his PPF contribution after the completion of the third year and before the sixth financial year. The government also allows closing the PPF account before the maturity after completing five years for the reasons like medical treatment or higher education.

Terms and Conditions of the Public Provident Fund Account

• A minimum contribution of INR 500 per year is required to open the PPF Account.
• An individual can contribute a maximum of INR 1.5 Lacs per financial year to the PPF Account.
• The current rate of interest in the PPF account is 7.1% and it can be changed by the government of India.
• You are allowed to take a loan against the PPF Account between the 3 ^rd year and 6 ^th year from the date of opening the PPF account.
• There is a Lock-in period of 15 years for the PPF account.
• Individuals can make partial withdrawals after the completion of the Sixth year from the date of opening the PPF account.
• The partial withdrawals are not taxable under the Income Tax Act.

PPF Withdrawals

The PPF account holder is allowed to make a partial withdrawal from his PPF account from the seventh year onwards. You can make a maximum of one partial withdrawal in a year. The maximum partial withdrawal will be the lowest of the following:-

• 50% of the Account Balance at the end of the fourth financial year.
• 50% of the Account Balance at the end of the previous financial year.

The partial withdrawals are not taxable and you can do it before maturity. You can also extend the PPF tenure even it is matured. You will not have to make further contributions after completing 15 years and earn interest on the accumulated funds. In the extended tenure, the PPF account holder is allowed to make one partial withdrawal of any amount in each financial year.

There is also an option to extend the contribution period for unlimited times after maturity but there will be a lock-in period of 5 years. The public provident fund account holder is allowed to make one partial withdrawal in every financial year but the withdrawal amount can be a maximum of 60% of the amount that was on maturity after 15 years.

Loan Against PPF Account

During an emergency, you can also take a loan against the PPF account. You are only allowed to take the loan between the third and sixth year from the date of opening the PPF account. The individual can a maximum loan of 25% of the PPF account balance at the end second year or in the preceding year in which the loan has been taken.

The PPF Loans are available at an interest rate of just 1% but it will accumulate on the loan amount. So the actual cost of the Loan against PPF will be PPF Interest Rate + 1%. The current rate of interest on the PPF loan will cost you 8.1%.

Conclusion

Now you know all about the PPF Account also known as Public Provident Fund Account. It is a great savings scheme that can help you to accumulate a lot of funds. On the other hand, the PPF interest rate is quite attractive and you can make partial withdrawals and take a loan against your account in case of a medical emergency or higher education.