Step-by-Step Guide to Opening a PPF Account
The PPF Account or the Public Provident Fund of India is a government-regulated saving scheme. The long-term investment scheme was introduced by the Government of India in the year 1968 as a solution for individuals to convert small savings into investments with stable returns. The main target of the PPF savings scheme is to keep the principal amount safe for later use while saving tax on the same. This investment scheme has a lock-in period of 15 years; thus, it can be considered a savings-cum-tax saving investment that helps people to create a retirement fund and save on annual taxes at the same time. The minimum amount of investment in a PPF scheme starts from INR 500 per annum and the rate of interest payable is set by the government for every financial quarter.
What are the features of a PPF Scheme?
The PPF is one of the safest schemes to create future savings while saving on taxes at the same time. The main components of functioning in a PPF (public provident fund) scheme are as follows:
1. Tenure of Investment
Any Public Provident Fund account functions for a lock-in period of 15 years from the date of investment. Funds from the PPF account cannot be withdrawn completely before this period ends. A PPF account holder has the option of extending the lock-in tenure by 5 years after the end of the initial 15 years if required.
2. Principal Amount
The annual amount of investment in a PPF account ranges between INR 500 to INR 1.5 lakh per annum. This investment can be made on an instalment basis over the year or as a lump sum amount. However, a PPF account holder can make only 12 yearly instalments in their PPF account. To keep the PPF account active, an investment must be made every year.
3. Tax Exemption
A PPF account falls under the EEE category, i.e. exempt-exempt-exempt, of the Indian tax deduction policy. Thus, the invested amount, the final amount and the interest earned are exempted from taxes.
4. Loan Against Investment
One of the major benefits of the PPF scheme is the provision for availing loans against the investment amount. However, the investor can only be granted loans between a set timeframe. The loan can be availed at the end of the 3rd year to the end of the 6th year from the date of account activation. These loans against PPF investment follow a maximum tenure of 36 months and only 25% or less of the total available amount can be claimed for this use.
Criteria for eligibility to open a PPF account
The criteria for opening PPF account in India follow the below conditions:
- All citizens of India, who are permanent residents within the country, have the eligibility to open a PPF account in their name.
- Parents also have a provision to open Public Provident Fund accounts in the name of their minor children, under the condition that the account is operated by the parent.
- NRI individuals are NOT eligible for opening a PPF account in India.
- Any existing PPF account under the name of a candidate who became an NRI after opening the account shall remain active till the completion of the lock-in period of 15 years and they do not have permission to extend the tenure by 5 years.
How to open a PPF account?
There are two methods to open a PPF account, namely:
- Offline PPF Account Opening Method
- Online PPF Account Opening Method
1. Offline PPF account opening method
A PPF account can be opened at any of the branches of national banks, post offices and also in major private banks like Axis Bank, HDFC Bank or ICICI bank.
The following documents must be carried by a potential candidate who wants to open a PPF account by physically visiting any of the above-mentioned offices.
- Form-A (PPF account opening form) – This form is provided to the individual at any of the banks that are authorised to open PPF accounts. The form must be duly filled and submitted at the time of application for opening a PPF account.
- KYC Document – KYC documents for the individual are needed to verify their identity. Any of the following Government Issued IDs are acceptable under KYC identification:
- Aadhar Card
- Voter ID Card
- Driving License
- Documents for the Proof of Address, like Passport or Aadhar Card.
- PAN Card
- A passport-size photograph for the eligible candidate.
- Form E (Nominee Declaration Form) – This form is provided by any bank that is authorised to open a PPF account.
Once the following documents are submitted to the bank official, they process the same and open a PPF Account for the individual. A passbook shall be issued for the individual for their PPF account to record all transactions.
2. Online PPF account opening method
Some banks provide services to open PPF accounts through online submission of documents. The individual should have an existing savings, current or salary account at the bank that they choose for opening the PPF account.
The below steps must be followed to open an online PPF account.
- Login to the Net Banking portal of the selected bank.
- Search for the ‘Open PPF Account’ option and click on the same.
- Choose the type of PPF account (Self Account or Minor Account) to be opened.
- Enter the required bank details.
- Fill in the Nominee details.
- A pop-up for verification of PAN (Permanent Account Number) details will open. Verify the same.
- Once the verification is complete, enter the initial amount to be deposited in the new PPF account.
- A dialogue box to select preferred instructions of deduction will open. Enter the relevant instructions to allow the bank to deduct the selected amount at fixed intervals or in a lump sum.
- Once all the selection is over, an OTP is generated and sent to the registered mobile number.
- Enter the OTP in the given pop-up box.
- The OTP acts as a verification for authenticity of the user. Once OTP is entered the PPF account is activated.
- The PPF account number shall be displayed on the screen.
It must be kept in mind that all banks have different processes for the opening of online PPF accounts, the general steps, however, remain the same. Banks also provide the facility to access the PPF account passbooks through net banking.
Benefits of a PPF account
The PPF Scheme is considered to be one of the best for savings and tax savings. It has numerous benefits:
1. Security for Investment
Since PPF is a government-initiated process, the principal invested amount and the interest earned is potentially safe and guaranteed.
2. Exemption of Tax
All investments to the PPF account and the interest earned on the same every year are exempted from the tax deduction.
3. High Rate of Interest
The government of India sets the rate of interest for the PPF scheme every quarter. The returns on the PPF are quite higher than the interest rates of many fixed deposits offered by banks for the same time.
4. Unattached to Government Orders
A PPF account is safe and immune to any decree or order of any court according to the terms laid down in the Government Savings Banks Act, 1873.
A PPF account is considered to be the most common tax-saving option for salaried individuals in the country. Having a 15-year lock-in period, it is best suited for people who want to have a long-term investment program and have enough savings for retirement.