PPF (Public Provident Fund): Deposit Limit, Eligibility and Tax Benefits

The Public Provident Fund (PPF) is a Centre-backed scheme launched by the National Savings Institute in 1968 to inculcate the habit of saving among Indian investors. It calls for depositing small sums of savings periodically, which earn a fixed interest. They are locked in for a period of 15 years, during which there are windows when the amount can be partially withdrawn in some special circumstances. 

The scheme is backed by the government of India, which makes it practically risk-free. Also, there are several tax benefits to investing in a PPF account. What are the PPF deposit limits? Who is eligible to open a PPF account? What are the withdrawal limits of a PPF? Continue reading to learn all about PPF in detail. 

About PPF Deposit Limits

You can open a PPF account with just ₹100/-. However, a PPF minimum deposit of ₹. 500/- every financial year is essential to ensure that the deposit in the account earns interest continually. 

There is no limit to the number of times you can make a deposit into your PPF account, which was earlier capped at 12 or 15 times. You can deposit any amount not exceeding ₹1.5 lakh in multiples of ₹50/- in a financial year.

The maximum amount in PPF in a given financial year cannot exceed ₹1.5 lakh. This is also the upper limit of the deposited income exempt from taxes under section 80C of the Income Tax Act. Interest earned in the account is free from Income Tax under Section -10 of I.T.Act.

For example, if you deposit ₹30,000 in May, ₹50 in July, and ₹60,000 in November, then the total amount is ₹90050, which doesn’t exceed the upper limit of ₹ 1.5 lakh per financial year. 

Eligibility Criteria for PPF

Only Indian residents can open a PPF account. However, If a PPF account was created by an Indian national (resident Indian) who later became an NRI, they can continue to make deposits into the account. 

Also, parents can open PPF accounts in the names of their minor children. However, only one parent can open an account in one child’s name. So, if you have only one kid, either you or your spouse can have an account for them. 

Further, the PPF deposit limit of ₹1.5 lakh is applicable to both your and your kid’s accounts. That is, if you have deposited ₹60000/- in your minor child’s PPF account, you can only deposit ₹1.5 lakh – ₹60000 = ₹90000/- in your own PPF account for that financial year. 

Documents Required to Open a PPF Account

You can open a PPF account both online and offline at your convenience. The following are the required documents for opening a PPF account:

Online mode

You can open a PPF account online through your savings account with a participating bank. You need to have internet banking enabled to be able to do so. You will require the below documents along with an application form to open the PPF account online:

• Valid ID proof.
• Valid Address Proof.

You can transfer a one-time amount or set up a standing instruction for your bank to debit a fixed amount periodically from your account. 

The Department of Posts (DOP) also has introduced the facility of opening and closing of Public Provident Fund (PPF) accounts for Post Office Savings Bank (POSB) account customers via its Internet banking facility. 

Offline mode

You can also open a PPF account by visiting a participating bank or post office. Here you will have to submit the following documents:

• Application form.
• Identity proof.
• Address proof.
• Signature proof.

After this, you will be asked to make the deposit prescribed amount before receiving the receipt.

Tax Benefits for PPF

Public Provident Funds fall under the Exempt-Exempt-Exempt (EEE) category of investment vehicles. This means that, as per section 80C of the IT Act, there are tax exemptions on:

• An annual PPF deposit limit of up to ₹ 1.5 lakh is in the account.
• The accumulated amount and interest income earned on the PPF account balance.

Withdrawal Limit from the PPF account

As discussed earlier, the amount in your PPF gets locked in for 15 years. However, you can withdraw partially from the account after the completion of 6 financial years from the year of opening the account. The withdrawal limit, in this case, is the lower of:

• 50% of the amount in your PPF account at the end of the 4th financial year after account opening.
• 50% of the amount in your PPF account at the end of the financial year preceding the current year of withdrawal.

Also, you can only partially withdraw from your account once in a financial year. You have to submit Form C to withdraw partially from your PPF account.

There is also an opportunity to borrow against your PPF, thanks to the sovereign guarantee. Between the 3rd and 6th years after the financial year in which the account was opened, you can avail of a loan against your PPF. 

The loan amount can go up to 25% of the balance in your PPF account in the 2nd year immediately preceding the current year of availing the loan. That is, if you are applying for a loan in 2015, you can avail yourself of up to 25% of the amount in your account at the end of the financial year 2013. The term of this loan will be 36 months.

You can only take a second loan after repaying the first one against your PPF. To avail of a loan against your PPF account, you must submit a Form D to the bank where your PPF account is maintained.  

Closing Thoughts

Thus, a PPF is an excellent instrument for building a large corpus step by step. The tax benefits ensure that the real returns (including both accumulated interest and taxes saved) on your savings are high. Also, the option to partially withdraw after six financial years and the facility of availing a loan against the PPF make it possible to both – manage short-term liquidity needs and save for the long term.

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