Public Provident Fund (PPF) is a preferred investment option among many Indian investors who wish to focus on long-term savings. This Government of India-backed investment offers attractive interest rates and guaranteed returns. Returns from PPF are fully tax-exempt as per Section 80C of the Income Tax Act. By investing in PPF, investors can save tax in the range of Rs. 500 to Rs. 1,50,000 per financial year. PPF also offers facilities such as loan, partial withdrawal, and extension of account.
PPF is a good investment option for self-employed individuals and those who belong to the unorganized sectors since they cannot avail EPF/GPF services. The interest on PPF accounts is announced for every quarter and is paid by the central government. The ongoing interest rate on PPF is 7.9%.
For the reference of new investors, here, we will discuss in detail about the process to open a PPF account.
How to open a PPF account?
Investors can open their PPF accounts at any post offices, nationalized banks or major private banks like ICICI, Axis Bank, HDFC Bank, etc. Many banks assist investors in opening a PPF account online through net banking.
To open a PPF account online via the net banking facility of a bank, an investor must have a savings account with the bank and should have enabled the internet banking or mobile banking services linked to the account.
Mentioned below are the steps to open a PPF account:
- Investors should first log in to the bank’s net banking portal using their net banking credentials.
- Navigate to the option that allows the user to open a new PPF account.
- Some banks may provide an option to select between a self-account and a minor account. Users should choose the option as applicable.
- To begin setting up the PPF account, users must enter the nominee details, bank details, etc. Some details such as Permanent Account Number (PAN) will be displayed. Users must verify that all the information displayed on the screen is correct.
- Once all the details are provided, users must enter the amount to be deposited in the PPF account.
- Users can also set up standing instructions (if allowed by the bank) so that the funds can be automatically deposited in fixed intervals or as a lump-sum amount.
- Next step is to enter the OTP sent to the user’s registered mobile number or the transaction password. The PPF account will be successfully created after completing this step.
- Users must note down the account number as displayed on the screen for future reference.
- Some banks may require users to take print-out of the details entered along with the reference number to further submit it at the bank as part of the Know Your Customer (KYC) details.
Once a PPF account is opened, a passbook with records of all transactions including subscriptions, interest, withdrawals, etc. is issued to the account holder. Some banks allow users to view PPF entries online instead of issuing a physical passbook.
Eligibility criteria for PPF account
Here are the eligibility criteria for opening a PPF account:
- Only Indian residents can open a PPF account.
- If a Non-Resident Indian (NRI) has opened a PPF account while being an Indian resident, the account is valid and can be continued up to 15 years. However, NRIs cannot extend the account beyond this timeline.
- Hindu Undivided Families (HUFs) cannot open a PPF account.
- Only one PPF account is permitted under an individual’s name.
- Individuals can also open a PPF account on behalf of a minor.
Documents needed for opening a PPF account
Applicants must ensure to keep the following documents ready while opening a PPF account:
- PPF account opening form (Form A). This can be obtained from select bank branches or can also be downloaded online.
- ID proof
- Address proof
- Recent photograph of the applicant
- Nomination form
Key features of PPF account:
Some of the key features of a PPF account are:
- Since this investment scheme is Government-backed, the principal and interest amounts in the PPF account are safe and guaranteed
- Annual PPF account contributions of up to Rs 1.5 lakhs and interest earned thereon are tax free under Sec 80C.
- The interest earned on contributions and the maturity amount are all tax-free
- The interest rate on PPF investments is declared by the Government of India every quarter.
- PPF returns are currently higher than FD rates offered by many banks.
Criteria for opening PPF account
Here are the criteria that an applicant must meet for opening a PPF account online:
- The applicant must have a savings account with the respective bank.
- Net Banking facility should be activated.
- Applicant’s Aadhaar number should be linked to his/her savings account.
- The applicant’s mobile number should be linked to Aadhaar.
Public Provident Fund (PPF) investment scheme is designed to help investors make small savings through a safe investment medium that can fetch reasonable tax-free returns. This investment form is called a savings-cum-tax savings investment that allows investors to build a retirement corpus while saving on annual tax payments.
- Is PPF a good investment?
PPF is a tax saving investment option mostly preferred by individuals who wish to invest for the long-term since it has a lock-in period of 15 years. Similar to PPF, there are multiple other options, such as the ELSS, that offer high returns on investments and help investors to save tax.
- How can I get the maximum benefit from PPF investment?
To gain maximum benefits from PPF investment, it is advisable to make an investment in the account before the 5th of every month. This helps in higher interest earnings and accumulation over time. Investors can also earn higher returns by making a lump-sum investment at the start of the financial year, i.e., before 5th April.
- Can I withdraw PPF after 5 years?
Under special circumstances such as medical needs or education purposes, the government allows 50% withdrawal from PPF after completion of 5 years of continuous investment.
- Can I continue to earn returns if my PPF account is inactive?
No. Interest will not be calculated for the year (s) that the PPF account is inactive. Only once the account is revived, interest is calculated on the balance in the account at the time of revival.
- What if I want to invest more money in my PPF account than the Rs. 1.5 lakh limit?
Even if you invest more than Rs. 1.5 lakh in your PPF account, interest is calculated and paid out only on amounts of maximum Rs.1.5 lakhs per year.