The tax season is on and with it has started every investor's search for the appropriate investment option which would cover his money from getting taxed and at the same time offer decent returns. In such a scenario, one investment option which has been a favorite for investors time and again is the public provident fund (PPF). PPF can be opened by anybody ranging from the salaried class, self employed people, housewives and even kids.
Opening a PPF account requires the customer to first fill the PPF application form. He has to provide two passport size photographs and a proof of his identity like passport, PAN card, driving license, voter ID etc. The signature of a witness is also required in this case.
Once the account is opened, a passbook of the PPF account is given to the account holder.
Characteristics of PPF:
•PPF can be opened by banks as well as post offices. All branches of State Bank of India and specified branches of nationalized banks have the authority to open PPF accounts for customers. Post offices also offer this facility.
•It is a long term saving instrument with a one time tenor of 15 years. After completion of this tenor, the fund can be continued indefinitely in slots of 5 years each.
•Return on this investment is calculated on annual compounding basis and paid to the investor only after the fund matures.
•Withdrawal from these funds is allowed only after seventh year and maximum allowable amount is 50% of the balance in the fund at the end of the third preceding year to the year when withdrawal was last made.
•A person can make contribution ranging from a minimum of Rs 500 to maximum of Rs 70,000 towards his PPF account every year. Contribution per year is necessary.
•Only one withdrawal is allowed every year.
•In case of death of the account holder before maturity of the account, the fund is transferred to the nominee or legal heir.
Benefits of PPF:
•It comes under the exempt-exempt-exempt (EEE) category of income tax. This means even the interest earned on this investment is exempted from tax.
•It gets benefit under section 80C of Income Tax Act up to a maximum limit of Rs 70,000 per year.