Interest rate on withdrawal. 10 rules investors should know


The Public Provident Fund (PPF) is a government-backed savings and tax program that allows an investor to build up a retirement corpus while saving on annual income tax. The PPF account is one hundred percent risk free and it is one of the limited savings plans that can beat the average annual inflation growth by 6 percent. Currently, the PPF interest rate is 7.1%, but there are other important rules that an investor should know.

We list 10 important rules for a PPF account holder:

1]PPF interest rate: Currently, the PPF’s interest rate is 7.10 percent. PPF interest is calculated on a monthly basis but compounded annually.

2]PPF interest calculator: PPF interest is granted on the minimum PPF account balance available between the 5th and the last day of the month. Thus, if a PPF account holder deposits from the 1st to the 4th day of a month, the investor is also eligible for the PPF interest for that month. Thus, for monthly PPF investors, it is advisable to invest from the 1st to the 4th of the month while for the annual lump sum depositors, they must deposit from April 1st to April 4th and earn PPF interest for the entire financial year on their deposit.

3]PPF deposit: A PPF account holder must deposit at least ??500 in one fiscal year to keep your account active when any higher investment ??1.5 lakh in a single fiscal year will not get PPF interest rate on excess deposit. This means that a PPF account holder can deposit a minimum ??500 maximum ??1.5 lakh on his PPF account.

4]PPF account rules: A person can only have one PPF account and the opening of a joint account is not allowed in the case of a PPF account.

5]PPF withdrawal rules: A PPF account holder can only withdraw the entire PPF account balance at maturity, that is to say after the expiration of 15 years. However, in the event of a financial emergency, the system allows partial withdrawal of the PPF from the 7th year of opening the account. Premature withdrawal is authorized after 4 years of opening a PPF account.

6]Tax advantage: As mentioned above, any PPF deposit above ??1.50 lakh during a financial year is neither eligible for the PPF interest rate nor for the exemption from income tax. In accordance with Section 80C of the Income Tax Act, a PPF deposit up to ??1.50 lakh in a fiscal year can be claimed for a tax benefit. This tax benefit under section 80C must be claimed when filing the income tax return (RTI).

Likewise, the amount at maturity of the PPF is 100% tax exempt at the time of withdrawal.

7]How to activate the PPF account: Minimum deposit default ??500 in one fiscal year freezes the PPF account. To activate the PPF account, there is a penalty of ??50 per year.

8]Guarantee against bankruptcy: A PPF account cannot be seized by a person to repay a debt, not even by court order.

9]PPF account extension: At the end of the 15-year term, an account holder can extend their 5-year bulk PPF account for an unlimited number of times.

10]Loan against PPF: An account holder is eligible for a PPF account loan between the 3rd and 5th year of opening the account. The loan amount can be up to 25 percent of the 2nd year immediately preceding the year of loan application.

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