Public Provident Fund (PPF) is one of the most preferred investment options in India. It is a long-term investment plan that brings stability to your financial portfolio. PPF not only gives tax benefits but also offers a host of other benefits which help individuals to save and grow their wealth. In this article, we will discuss eight benefits of PPF beyond income tax exemption.
Fixed Returns
PPF offers a fixed rate of interest which is determined by the government of India. It is currently at 7.1% per annum and is compounded annually. The interest rate is subject to change every quarter as per government notification. Hence, it offers a guaranteed return and creates a sense of security for investors. One can use a PPF calculator to know how much maturity amount one can expect after a certain period.
Long-term Investment
PPF is a long-term investment option with a minimum lock-in period of 15 years. This makes it an excellent option for those looking at long-term investment goals. Moreover, it can be extended for a block of five years after maturity. This essentially means that one can invest in PPF for an indefinite period, and keep earning the compounded return on it.
Tax on interest earned
PPF is an EEE (Exempt-Exempt-Exempt) investment option, which means that the investment, returns and maturity amount are all exempted from taxes. However, there are some scenarios where tax is levied on the interest earned. For example, if the interest earned in a financial year exceeds Rs 1.5 lakhs, then the amount is taxable as per the tax bracket of the investor for that year.
Loan against the PPF account
One can avail of a loan against their PPF account after the completion of the third financial year from the date of opening the account. The loan amount is limited to 25% of the balance in the account at the end of the second year preceding the year in which the loan is applied for. The loan is to be paid back within three years at an interest rate of 1% per annum.
Premature withdrawal
PPF account holders can make partial withdrawals from the seventh year of opening the account. The amount is subject to a maximum of 50% of the balance at the end of the fourth year preceding the year of withdrawal or the year immediately preceding the year of withdrawal, whichever is lower. However, only one partial withdrawal is allowed per financial year.
Nomination
PPF account holders can nominate a person to receive the corpus of the account in case of the account holder’s death. The nomination can be made at the time of opening the account or at any time before the maturity of the account. It ensures that the invested amount is passed on to the nominee without any legal complication.
Transferability
PPF account holders can transfer their account from a post office to a bank or vice versa. Moreover, the account can be transferred from one post office to another or from one bank to another at any time. This enables the account holder to manage their investment from a location of their choice.
No attachment order
The balance in a PPF account is not liable to attachment under any order or decree of any court of law in respect of any debt or liability incurred by the account holder. This ensures the safety of the investment in case of any financial or legal trouble for the account holder.
In summary, PPF is an excellent investment option for those looking to invest for long-term financial goals. In addition to offering a tax exemption, it also offers guaranteed returns, loan options, and premature withdrawal among other benefits. However, investors must evaluate their financial goals and risk appetite before investing in any financial instrument.
Disclaimer: Investing in the Indian financial market involves risks, and investors must do their due diligence before making any investment decisions. The information presented in this article is for informational purposes only, and we do not endorse any financial product or service.