Public Provident Fund: How does this work? Features, Benefits & more.

What is a PPF account and how it works?

Many people in the world do not like a 9-5 corporate job and wish for an independent career. Business is one fruitful way of fulfilling this wish. Over the years, businesses have downsized from huge corporations and companies to small organisations like startups. The architecture itself has undergone a transition with the facilities and technology coming to the forefront.

One major hurdle that most of these small businesses face is the financial management department. It can cause a lot of issues like unfair distribution of profits or mismanagement of funds if not done properly. The best way to deal with this problem is to invest the money so that there are maximum returns. One potent way of doing so is to invest in a Public Provident Fund. This article deals with the various aspects related to PPF and how small businesses can benefit from it.

What is a PPF Account?

To put it in simple words, PPF or Public Provident Fund is an option for investment, which helps to exempt money for deduction from income tax. Thus, it is a form of saving that businesses can employ to get the maximum benefits out of it.

The interest that is generated from the PPF, as well as the money that will be generated at the time of maturity, both of them are not liable for taxation, making it a double saving deal. Thus, if you are looking to open an account with a sizeable amount of money, PPF is definitely a good option.

How Does PPF Work?

The amount of money that can be deposited in a PPF is 1.5 lakhs a year, and it has to be locked in for 15 years. You can deposit every month, or you can opt for a gross payment every year. Thus, the total amount of money that becomes available at the end of the tenure becomes quite significant, and it is exempted from taxes as well.

Fixed interest is generated from a PPF account every month based on a fixed percentage by the provider. However, it does not get credited to the account at the end of every month. It is credited at the end of the financial year. At the end of 15 years, you have two options. You can withdraw the whole amount, or you can extend the account for a further 5-years block. All you have to do is write a letter of intimation to the concerned authority about it.

During this new block, you can either keep the account static and not deposit any more money into it. Your total will be credited at the end of a further five years. You also have the option of continuing the deposit for the next tenure as well, and it will be free from taxations accordingly. The benefits do not stop there. You can keep extending in 5 years' blocks for as long as you want till you decide to close the account.

Generally, a PPF account can be opened, accessed, and closed from a bank or a post office, and you can handle your proceedings from there easily. If you want to make money out of the account, you can do that from the 7th year itself. PPF is mainly a saving scheme and cannot be used to pay off any outstanding debts by law.

What Are the Benefits of a PPF Account?

There have to be certain advantages that will set a PPF account apart as an ideal investment if saving money is the main criterion. This is an agenda that is applicable to small businesses, especially and on a personal front as well. The benefits can be listed as follows-

The principal amount and the interests generated on the PPF account are tax exempted. Thus, you will not lose out any money from it. You will also get an annual rate of interest on the amount which is tax-free as well.

Your money will not only be safe and secure, but you will also be able to see it multiply at a considerable rate without any omission on withdrawal. It is a win-win situation in all aspects.

Whenever you look at different forms of investments like the stock market and mutual funds, there is always an element of risk. The market may become volatile suddenly due to the finance sector’s bad performance, and the result of it is reflected in these.

However, a PPF fund is completely risk-free in this aspect. It is a scheme that is backed by the Government itself. Moreover, the rate of interest remains the same irrespective of how the market behaves. You will not lose out or decrease your money in any way.

The main idea behind providing this scheme by the Government was to help build a fund after retirement so that there are no constraints felt in the post-retirement life. In accordance with this, PPF accounts have an impressive locking period of 15 years, and it can also be extended in chunks of 5 years if the account holder wants.

However, the hands are not completely tied. If you are in dire need of money and want to acquire some amount partially, you start doing so at the end of 7 years itself. The interest that you will receive subsequently will be slightly less as it is based on the lowest credited amount, but the usefulness of the money will outshine it.

Taking loans has become an integral part of the financial infrastructure for many. There is the facility of availing a loan based on the amount in your PPF account, and it becomes eligible from the 3rd year. If you clear this loan within the stipulated period, you can take a second loan in the 6th year as well.
You can either opt for a monthly deposit of the money in your PPF account or make a one-time hefty deposit into it. Thus, the payment options are quite flexible in it.
Facing a dilemma between a fixed deposit and PPF account, you can opt for the latter because interest rates in it are higher than the former. Thus, the returns that you will get at the end of a minimum of 15 years will be more than what you would have received for a fixed deposit.

How To Maximise Benefits in PPF Account?

The main aim of a PPF account is to save the maximum amount of money possible and keep a hefty amount and free of taxes.

The best way to keep increasing the money in the account is to ensure that the interest keeps getting added to it at the right time. Since the interest amount is calculated on the 5th of every month and is based on the lowest credit balance, you should make your monthly deposit before the 5th for maximum benefits.
If you have chosen the lump sum deposit option, you should do it before 5th April of every year as the interest for the financial year is calculated before that.

Following these two techniques will ensure that the maximum amount of money is generated and credited to your PPF account.

Who Can Open a PPF Account?

Unless you are a Non-residential Indian (NRI), everyone is eligible to open a PPF account. There are some conditions, though. A single person can have only one PPF account in his or her name, and it will have a locking period of 15 years. There is the provision of shifting the account from one type to another by contacting the respective branch. Joint accounts cannot be made, even if two people belong to the same family.

Opening a PPF account has no age limit, and even a non-salaried person with a business can benefit from it. A PPF account can be created from a bank or a post office, with the provision of an online account being available these days.

Conclusion

Now that you have a brief idea about how PPF accounts work, you should consider opening one from a credible bank or post office. PFF has numerous benefits for you and your company. We hope this article helps you leverage them.

Also read:
Types of deductions under section 80C. What is included under 80C?
The USA vs India: Taxation System
Can GST benefit Salaried People?