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I am sure most of you have heard the acronym PPF and I am also sure most of you are not aware that it stands for Public Provident Fund. Retirement fund or retirement investment is a very big area in any India’s financial or savings structure. Where a Provident Fund is limited to a employee of an organisation, Public Provident Fund is open to all. Thus, a businessman , a farmer, a student or anyone who wants to enjoy the benefits of a PF can invest in PPF.

How does it work?

Banks are authorized to open a PPF account for their customer and thus you need to approach your bank at the first place. You have to mandatorily invest atleast Rs 500 every year in PPF. An interest will be paid to  you annually at a rate decided by the bank. It depends on the performance of the bank and other factors.  PPF accounts have a lock-in of 15 years. On maturity, the investor has the option of taking any one of the following steps:

  • Withdraw the proceeds and close the account.
  • Continue the account for a block of five years.

Further, PPF account cannot be attached by a person to pay off debts. A court decree also cannot ask the person to pay off debts using funds in his PPF account. During the first 15 years of the account, partial withdrawals are possible from the 7th year, subject to certain conditions.

Tax benefits

With an investment in Public Provident Fund you can claim a tax deduction under section 80C within the limit of INR 1.50 lakh. Interest received is exempt from tax and there is no tax on the amount received on maturity of the account either. In view of the tax benefits offered, many assessees open PPF accounts with their bank/post office to build a sizeable corpus.

Closure of account

If you would like to close your account or stop investing yearly you have to give it in writing to the bank. Thereafter, follow the normal account closing procedures. If you want to continue the account for 5 years, you need to give an intimation in writing on a prescribed form to the bank/post office within a year of maturity of the account. You can keep the account operative with the balance standing to the credit of the account, without making any new contributions. Alternatively, you can keep making deposits and continue to avail tax deductions on such deposits. Once the block of five years is over, the account can be continued for another block of five years and so on. The account will continue to earn.

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