PPF Stands for Public Provident Fund. PPF is the National savings scheme started in 1968 by the Government of India. The Main Purpose of Starting these Schemes is to get the Fund for the development of the country. Also, PPF provides a Guaranteed return of More than 7%. This return is Compounded. PPF was started to build a retirement corpus for the general public. Interest Received on PPF is Tax-Free.
What is a PPF Account?
Public Provident Fund(PPF) is generally a retirement fund. It Offers an attractive Gurranted Return of More than 7%. The interest which you will earn under the PPF scheme will be Tax-Free. All the Deposited Amount During a Year in PPF can be claimed under Section 80C.
Reason Why You should Open PPF(Public Provident Fund)?
1- Compounding Power
You all have heard about Compound Interest. Compound Interest is receiving Interest On Interest. The Same Thing Happens in PPF. Since PPF has the Lock-in Period of 15 Years so you ample time to see the Power of Your Childhood Maths Topic – Compound Interest. Let’s Understand this with an Example-
Suppose you deposit 1,50,000 Rupees per year in one go and you deposit this amount for 25 years. then amount which you will accumulate will make you crorepati. i.e. Your Total Amount will be 1.03 Crore Rupees. Out of this 1.03 Crore Rupees 65.58 lakh Rupees comes as interest and the rest 37.5 is your deposited amount. If you can wait for 5 more years and deposit 1.5 Lakh Rupees for the next 5 years then your Total amount will be 1.5 Crore.
2-Interest is Tax-Free
The major reason for investing in PPF is Interest that you will receive will be Tax-Free. In India people wants to save tax and PPF Investment is a good source of Saving tax. Investment in PPF Comes in the EEE category i.e. Exempt, Exempt, Exempt. This means that the Deposit is tax-free, Interest Received is Tax-Free and Withdrawal is also tax-free.
3- Loan against PPF Deposit at a very low rate of Interest
Suppose you require some amount and you know that this amount you will get back after a certain period of time so instead of withdrawing partially you take a loan against your PPF deposit. You can repay the loan and your PPF deposit remains the same and it will not affect your retirement planning. You can apply for a loan between the third and sixth financial year from the opening of the PPF account. Also, Interest is charged at only 1% per annum on the principal loan amount. if anyone defaults in repaying the loan then interest is charged at 6% per annum on the principal amount. The loan amount can be a maximum of 25% of the 2nd year immediately preceding the loan application year.
4- Partial Withdrawl
You can partially withdrawal from your PPF account. This partial withdrawal is allowed after the fifth year from the date of account opening. 50% of the deposited amount at the end of the fourth year immediately preceding the year of withdrawal or at the end of the preceding year, whichever is lower can be withdrawn partially.
5- Tax Benefit under Section 80C
Rs 1.5 Lakh deposited every year in PPF account is liable for tax benefits. You can take tax benefits every year while filing ITR.
6- Higher Interest Rate.
Till Now Interest Received under PPF is higher in comparison with other FD schemes offered by the Government of India. Currently, Interest Received under PPF is 7.1%. This makes PPF a Good Investment option for Retirement.
So, If we summarize the reasons for investment in PPF then It has a higher interest rate. Investment is in the EEE category it means exempt from every tax. The loan can be taken at a very low rate of interest. Amount Deposited in PPF can be withdrawn partially.