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Understanding PF and PPF
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The Public Provident Fund is the darling of all tax saving investments.
Little wonder! You invest in it and you get a deduction on your income. Besides, the interest you earn on it is tax-free. Since it is a scheme run by the Government of India, it is also totally safe. You can be sure no one is going to run away with your money.
Here, we summarise the scheme, tell you how to open a PPF account and what to expect.
1. To open a PPF account, drop by a State Bank of India [Get Quote] branch. SBI's subsidiary banks can also open accounts. A list of these subsidiary banks is available on the bank's Web site.
You can even visit the nationalised bank in your neighbourhood. Selected branches of nationalised banks can also open accounts.
The head post office or selection grade sub-post offices also open PPF accounts.
2. You will have to fill up a form. You can take a look or download the form from SBI's web site.
Along with the form, attach a photograph and submit your Permanent Account Number. If you do not have a PAN, then furnish an attested copy of either your ration card, voter's identity card or passport.
When you open an account, you will be given a passbook (just like a bank pass book) in which all subscriptions, interest accrued, withdrawals and loans are recorded.
3. You can have only one PPF account in your name. If, at any point, it is detected that you have two accounts, the second account you have opened will be closed, and you will be refunded only the principal amount, not the interest.
4. You cannot open a joint account with another individual. The account can only be opened in one person's name.
You are free to nominate one or more individuals. On the death of the account holder, nominees cannot keep the account going by making contributions. If there are no nominees, the legal heirs get the money.
You can open one account for yourself and others for your child/ children. But, on your death, your children cannot make any additional contributions.
5. The minimum amount to be deposited in this account is Rs 500 per year. The maximum amount you can deposit every year is Rs 70,000. The interest you will earn is 8% per annum.
Let's say you open an account for your minor child. You can deposit Rs 70,000 in your account and Rs 70,000 in your child's account. But you will only get the tax benefit on Rs 70,000.
Just because you have one account for yourself and one for your child, it does not mean the tax benefit is doubled. The limit is the same -- Rs 70,000 -- irrespective if it all goes in your account or is divided betweeb your account and your child's account.
You can make up to 12 deposits in one year. You don't have to put in this money at one go.
6. The PPF account is valid for 15 years.
The entire balance can be withdrawn on maturity, that is, after 15 years of the close of the financial year in which you opened the account.
So, if you opened it in FY 2006-07 (this financial year), you will be able to withdraw it 15 years later, starting March 31, 2007 (end of this financial year). That means your PPF matures on April 1, 2022.
It can be extended for a period of five years after that. During these five years, you earn the rate of interest and can also make fresh deposits. Once your account expires, you can open a new one.
The only limitation is that you cannot withdraw it until seven years are completed, after which 50% of your deposits can be withdrawn, if needed.
Do consider opening a PPF account if you do not have one. You can put in as little as Rs 500 a year to keep it going.
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