v PPF offer the best result from tax point of view and is most popular in the middle class taxpayers especially the employees. Public Provident Fund(PPF) benefit is available not only to contribution made in the name of the assessee but also made in the name of children including married daughter and spouse of the assessee in the case where other investments like ULIP, Life Insurance etc. under section 80C of the Income Tax Act. With 15 year investment time frame and tax free return (Interest Income is exempt), the scheme merits inclusion in most portfolio but in the right allocation.
v An Individual can open a PPF Account. A Salaried employee can also open a PPF account though he may be a contributor to a recognised provident fund set up by the employer. Only one account can be opened by a subscriber. Another account even at another place is not allowed. Account in joint name is not allowed.
An individual, in addition to opening an account in his own name, can also open an account in the name of his minor child, subject to aggregate limit of deposit in his own account and in the name of the minor.
v An account may be opened in any branch of the State Bank of India or its subsidiaries at Head Post Offices, specified sub-post offices and branch of nationalised banks which are so nominated for the purpose.
v The minimum annual subscription is Rs.500 while maximum amount is Rs.70,000/-. The subscription can be made in instalment not exceeding twelve in a year.
v The interest earned is compounded. Interest rate may be varied and it is 8% w.e.f. 01.03.2003. Interest which is credited to the PPF account is completely exempts from tax upto any extent.
v An HUF cannot open a PPF account with effect from 13.5.2005, but existing account can be continued for remaining period of eligibility.
v The accountholder can nominate one or more person to receive the balance in the event of his death.
v Sometimes it is felt that it is a long term investment, where moneys are tied up for a long period since the entire balance can be withdrawn only after 15 years. The point, however to be noted is that withdrawal are possible after six year upto 50% of the balance to the credit at the end of the forth year immediately preceding the year in which the amount is withdrawn or the end of the preceding year, whichever is lower. In the event of death, the entire amount can be withdrawn before expiry on demand from the legal heirs.
v It is also possible to take a loan in case of need, such loan amount being restricted to 25% of the balance at the end of 2nd preceding financial year and can be repaid in 36 month or less. A second loan can be taken if the first loan is fully repaid. Loan from PPF is at 2% more than the interest to which he is entitled.
v PPF account can be discontinued but even such discontinuance would not disentitle the credit of interest through all other facilities like loan or withdrawn will not be allowed. Even non payment in particular year of minimum amount of Rs.500 can be regularised by depositing the same in the subsequent year with interest.
v One advantage of PPF as in the case of other provident funds is that the amount cannot be attached under degree or order of a court of law apart from income tax arrears. This has been conceded by C.B.D.T. as well in ministry of finance (DEA) Lettor No.7/21/88-2/90-SB dated 10/08/1990 as circulated by the Director General of Post’s letter No.38-2/90-SB dated 07/11/1990. Hence income-tax authorities cannot also attach PPF account
v The amount standing to the credit of PPF account is exempt from wealth – tax , but this is of little significance now since wealth –tax is not even otherwise leviable on any deposit as it is now limited only to selected items like residential house property (more than one), jewellery, motor cars and urban land apart from other sundry items.