Yes, paying taxes is painful. It is not easy to mandatorily let go of your hard-earned money. However, it is a vital contribution from you to society.
So, can you alleviate the burden of taxation from your shoulders?
If you belong to the earning-class; a freelancer, an entrepreneur, a businessman, or an executive member of a well-established company, you must have surely received the suggestions of investing your money into a PPF to help with your taxes and maximise your returns.
However, if you are also like the thousands of other people who do not completely understand the PPF, you are in the right place. Keep reading as we break down everything you should know about the Public Provident Funds and how you can benefit from getting a PPF account.
What is a Public Provident Fund (PPF)?
PPF stands for ‘Public Provident Fund’. The Public Provident Fund is a stratagem that is beneficial to the public. It was launched in 1968 by the National Saving Institute of the Finance Ministry of India.
The motive of the Public Provident Fund is to encourage the earing-class citizens of the country to participate in saving their money or investing a part of their earning for greater future returns. Many people are eligible for a tax deduction of up to 1.5 lakh under PPF.
The PPF scheme stands out for its conglomeration of safety, security, high returns and tax deductions.
What Does a PPF Entail and Why You Should Open a PPF Account?
Many argue that a Public Provident Fund (PPF) is quintessential for individual employed personnel. It entails low risk and stable future returns. Moreover, the PPF scheme also guarantees these returns because it is a subset of the Indian government.
Features of a PPF Account
Given below are a few things to consider before opening a Public Provident Fund account.
Risk v/s Returns
Most working-class citizens of the country are sandwiched between the dichotomy of risks and returns under any investment.
Often, the rule of trade is as follows;
- Low risk, low reward
- High risk, high reward
However, the citizen favourite is ‘low risk, high reward’. That is precisely what the PPF seeks to achieve. In a nutshell, the interest on your money is generally kept higher than the inflation rate. Therefore, you have a lot to gain and nothing to lose.
Since the PPF is government-controlled, it is one of the safest investment options for the investors, i.e., you.
The Public Provident Fund is an investment option for everyone. Hence, the yearly investment in PPF can be as low as INR 500 or as high as INR 1,50,000.
You are mandatorily required to invest money into your PPF account every year for 15 years. In the event that you fail to do so, your PPF account will be rendered inactive. You will be charged a certain amount as a penalty if you choose to activate the account again.
A downside to PPF is that it has the highest lock-in period of all tax saving options and schemes. This means that you can only take out your money only after 15 years of opening a PPF account, and no sooner.
However, this lengthy lock-in period is what makes it a low risk and high reward option. At the end of the 15-year tenure, you earn high interests and reap great rewards.
Of course, life can be uncertain, and you might need some of the money you have saved before the 15-year period. Hence, partial withdrawal of your money is allowed under certain pre-defined circumstances, like the higher education of your children or any medical emergency.
The noteworthy point of a PPF account is that you get attractive tax benefits. For example, no tax is charged on the interest you obtain from a PPF account, unlike the taxable interest of regular bank fixed deposits (FDs).
Loans and Debts
If you are a PPF account holder, you can claim loans over your PPF account as well. In such cases, the interest rate of the loan would be 1% higher than your PPF interest rate.
Moreover, the amount you have invested in the Public Provident Fund is not liable in cases of debt. If you need a high loan amount, you are required to have a good cibil score. To boost your cibil score, you can apply for credit card and make your payments on time.
Are You Eligible to Open a PPF Account?
The PPF scheme is meant only for the Indian population. Hence, the foremost requirement is that you should be an Indian citizen.
You can only open one account on your name. However, you can open another account, on behalf of a minor like your wards.
Non-Resident Indians (NRIs) and Hindu Undivided Families (HUFs) are not eligible for a PPF account. But HUFs can certainly invest in individual accounts.
Opening a PPF Account
Opening a PPF account has become very convenient. Earlier you could open a PPF account only in nationalised banks and post offices, but now, you can open a PPF account in a private bank as well.
Documents Required to Open a PPF Account
To open a PPF account, you would require the following:
- Duly filled application form
- Valid identities (ID) proofs like Passport or Aadhaar card
- Address proof
- Signature proof
Is PPF the Best Option for You?
PPF is a low-risk investment, but when you consider the fact that your investments are locked for 15 years, some questions start to arise.
So, to clear all doubts; you end goal plays a pivotal role in deciding the benefits of opening a PPF account.
The interest obtained in a PPF account in a broader scale is greater than the inflation, but if your end goal’s inflation rate is above the PPF interest rate, then the final amount you collect after 15 years may not be enough to meet your needs.
However, for individuals without the Employees’ Provident Fund (EPF), a PPF could be a wise decision. Opening a PPF account in most cases does more good than harm. Hence, if you are unsure about opening a PPF account, you might as well lean in towards opening it as the investment amount is relatively low, just like the risk.
You can use a ppf calculator to calculate the amount you need to invest for a particular goal or to calculate how much you are bound to receive at the end of the 15-year tenure. Similarly, there are many such calculators like the debt payoff calculator, through which you can check how to pay off your debt.
At the end of the day, your money is your hard-earned asset, and you must make wise decisions as to where you put your wealth.