You May Not Be Aware Of This Five PPF Account Benefits

You May Not Be Aware Of This Five PPF Account Benefits

Interest rate on PPF and other small savings scheme are being reset every quarter from April last year, as compared to the annual mode earlier.

A PPF account holder can avail of loan facility in the third financial year.

Main Features:

• PPF account holders can avail of loan facility.
• Users can also opt for PPF partial withdrawal, says India Post's website.
• Premature closure of a PPF account is also possible.

PPF or public provident fund is one of the most popular small savings scheme. Its popularity is understandable given that PPF enjoys EEE or exempt, exempt, exempt status in terms of income tax implication - contribution, interest and maturity proceeds all are tax free. Interest rate on PPF and other small savings scheme are being reset every quarter from April last year, as compared to the annual mode earlier. The interest rates on PPF and other small savings schemes are linked to yields on government bonds, with a small mark-up. PPF deposits are eligible for tax deductions under Section 80C. A maximum of Rs. 1.5 lakh can be claimed in one financial year.

Here are some other benefits of PPF account:

 Loan Against PPF:

A PPF account holder can avail of loan facility in the third financial year from the financial year in which the account was opened. The loan can be taken up to 25 per cent of the amount in the account at the end of the second year immediately preceding the year in which the loan is applied for. The rate of interest on the loan shall be at 2 per cent per annum above the PPF interest rate. The loan is repayable in 36 months.

PPF Partial Withdrawal:

Partial withdrawal is permissible every year from 7th financial year from the year of opening account, according to India Post's website. The maximum amount is limited to 50 per cent of the balance at the end of the fourth year immediately preceding the year of withdrawal or the amount at the end of the preceding year, whichever is lower.

Premature Closure Of PPF Account:

Premature closure is allowed only after the account has completed five financial years and under specific conditions like expenditure towards medical treatment and higher education, according to an amendment in 2016.

PPF Account Extension:

The original duration of a PPF account is 15 years. Thereafter, on application by the subscriber, it can be extended for one or more blocks of 5 years each.

PPF Interest Rate Calculation:

The interest rate on PPF is compounded annually. Interest is paid on 31st March every year. The interest for the month is calculated on the minimum balance available in the account from 5th of a month to the last date of the month.

The biggest draw back of the PPF Scheme:

It is a long term investment, and thus people who are ready to block the funds for longer tenure should opt for this scheme. Although part withdrawals and loans are allowed, yet these are available only as a small percentage of the total balance. Thus, PPF scheme is considered as illiquid.

Moreover, the rate of interest allowed on PPF account has been less than the inflation rate for number of years recently, and thus, some consider these to be negative returns.

[In spite of these drawbacks, PPF is considered as the top scheme for the investors who wish to save tax through Section 80C or earn tax free interest]

Thank You...