PPF-Benefits & Workings of PPF (Public Provident Fund)

1. Safety & Risk Free Guaranteed Returns

• As PPF is backed by Indian Government it offers guaranteed, risk free returns as well as complete capital protection. (Officially, the scheme is governed by the Government Savings Banks Act, 1873)
• The money in the PPF is credited to the National Small Savings Fund (NSSF) which is maintained & utilised by the Government of India.
• The interest on the PPF is also paid by the Government. This makes it safer than bank interest as well because bank fixed deposits are only insured up to Rs 1 lakh by the Deposit Insurance and Credit Guarantee Corporation (DICGC).

2. PPF Investments bring Tax Benefits 

• Contributions to the PPF are tax deductible up to Rs 1.5 lakh per annum under Section 80 C of the Income Tax Act, 1961. 
• The interest on the PPF is exempt from tax and the maturity amount is also exempt from tax. 
• PPF has an Exempt-Exempt-Exempt (EEE) model of taxation.

3. PPF Interest Earnings

• Interest rate on PPF deposit is not fixed. Govt. revises interest rates every quarter, depending on the yields of Govt. bonds. Interest is compounded annually & credited at the end financial year.
• The PPF interest rate has historically been around 7.6% to 8%. It tends to move slightly higher or lower depending on the overall interest rate scenario in the economy.
• The PPF rate for July-September was 7.9% & for January–June 2019 was also at 8%. It was/is higher than the corresponding fixed deposit (FD) rates in many a banks.

4. Loan Against PPF

• A PPF subscriber is allowed to take a loan from his PPF A/c from the 3rd financial year onwards. 
• This loan facility against the PPF A/c is available only till the end of 6th financial year.
• The maximum tenure of such a loan is 36 months. 
• The maximum amount of loan that can be availed against PPF accounts is 25% of the balance at the end of 2nd financial year preceding the year in which the loan was applied for.
• The interest rate payable on loan taken against PPF account is 2% higher than the prevailing interest rate on PPF account.

5. PPF A/c Validity & Extensions

• Partial withdrawals can be made from the expiry of 5th financial year after the year in which A/c is opened.
• Only one partial withdrawal is allowed per financial year. 
• Maximum amount that can be withdrawn per financial year is the lower of following:
• 50% of the account balance as at the end of the financial year, preceding the current year, or
• 50% of the account balance as at the end of the 4th financial year, preceding the current year

6. PPF A/c Validity & Extensions

• PPF A/c matures in 15 years (Lock in period of 15 Years) after which subscribers can retain the A/c without making any further contribution.
• Balance in the A/c continues to earn interest till A/c is closed.