What Is A PPF Account? Consider These 5 Factors before Opening One

Posted by Arjit Chalmela on June 28th, 2019

One of the favourite avenues for investors over the decades has been the Public Provident Fund. PPF offers several tax benefits to the investors, which is why it is the most preferred form of investment. The principal amount is tax-free under Section 80C of the Income Tax Act, 1961 and the interest rates are exempted from taxes under Section 10.

How does a PPF account work?

A PPF account is a 15-year scheme which you can extend indefinitely after every 5 years. You can open the account either in the post office or a bank branch. Some also allow online application. You also have the liberty to transfer the PPF account from a post office to a bank or vice versa. Plus, a person of any age can hold a PPF account. The deposit limit is 12 times per year. You have to, however, do so before 5th of every month to get the interest for the full month. Many investors tend to invest a lump sum amount at the start of the financial year.

Many look up to the PPF for its tax benefits. But before opening the account, consider the following aspects:

1) Lucrative interests: PPF is a debt-based asset. Your investments are not exposed to equities, and hence, are not affected by the market conditions. The PPF interest rates are set by the Government every quarter based on the return of Government securities.
 

2) Deposit limit: The minimum amount you need to deposit to keep it active is INR 500. You can deposit a maximum of INR 1.5 lakh every financial year. You can open the account in your name or on behalf of the minor of whom he is the guardian. If you contribute more than INR 1.5 lakh every year, the excess deposits are considered irregular. The excess amount will not reward you any interest or fall under tax-exemptions. In addition, the subscriber gets the refund without any interest.
 

3) Minor account: A mother or father can open the PPF account on behalf of the minor. Both parents cannot open a separate account on the same minor’s name. At times, grandparents may be interested in opening a PPF account for their grandchild. PPF rules do not allow them to do so, especially when the parents of the minor are alive. They can do it only if they are appointed legally as the guardian of the child after the parents’ death.
 

4) Account numbers: You can open only one account either in the post office or a bank and declare the same on the application form. If you have a PPF account held in the bank, you cannot open another in the post office or vice versa. If the subscriber has two accounts to his name, the second one is treated as an irregular account and does not offer any interest.
 

5) Premature closure: PPF account early closure is a thing. You can do it only after the completion of five financial years and on the grounds of severe ailment treatment or life-threatening disease of the account holder, spouse, or dependent children or parents, by producing a supporting document from an authentic medical authority. If you require the amount for a child’s education, you must provide materials and bill receipt towards admission confirmation for premature closure of PPF account.