Login Welcome, Guest
Five things to know about the PPF


The Public Provident Fund (PPF) may be one of the most popular tax-saving schemes, which can be opened in a post office or designated bank branches, but do you know the investment limit or the withdrawal time frame? Here's how to familiarise yourself with this investment option.

1) How much is the interest rate?

The interest rate offered on the PPF is no longer fixed, but linked to the market. It is 0.25% above the 10-year government bond yield. This does not mean that the rate will change on a day-to-day basis. It will be announced every year in April, based on the average bond yield in the previous year. For the current financial year, it is 8.8%, but could recede next year. Bond yields have fallen below 8% in recent weeks and the average for 2012-13 has dropped to 8.25%. Analysts don't expect the PPF rate to be more than 8.5% in 2013-14.

2) How does the interest accrue?

The interest on your PPF balance is compounded annually, but the calculation is done every month. The interest is calculated on the lowest balance between the fifth and last day of every month.

So, if you invest before the 5th, the contribution will earn interest for that month too. Otherwise, it's like an interest-free loan to the government for a month. If you are investing through a cheque, make sure you deposit it 3-4 days before the cut-off date. If your bank is lethargic in crediting the amount to your PPF account, your investment might miss the deadline.

3) What are the tax benefits?

The PPF corpus is tax-free at all three stages. The investment is eligible for tax deduction under Section 80C. The interest earned is also tax-free, and so are withdrawals. The original draft Direct Taxes Code, introduced in 2010, had proposed withdrawal of tax benefit. Though it would have been with prospective effect and existinginvestments would have been exempt, there was strong opposition to the move. The revised draft DTC nixed the proposal. However, with P Chidambaram back as finance minister, the original DTC proposals may come back in some form. Make the most of this tax-free opportunity before the rules change.