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PPF investment for tax saving — Interest rate, maturity, premature withdrawal and key details

PPF investment for tax saving — Interest rate, maturity, premature withdrawal and key details

PPF investment for tax saving  — Interest rate, maturity, premature withdrawal and key details
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By Anshul  Jan 23, 2023 4:08:34 PM IST (Updated)

Public Provident Fund (PPF), a retirement planning-focused instrument, was introduced by the National Savings Organization in 1968. PPF has a lock-in period of 15 years and comes with an EEE (Exempt-Exempt-Exempt) tax status. The maturity amount and the overall interest earned during the period of investment are tax-free.

A little more than two months are left to exhaust the available investment limit to claim income tax exemption while filing an income tax return (ITR) for FY2022-23. While there are several avenues available in the markets for the same, Public Provident Fund (PPF) is considered one of the most attractive one. The reason is PPF comes with an EEE (Exempt-Exempt-Exempt) tax status. The maturity amount and the overall interest earned during the investment period are tax-free.

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Also, periodic investment in PPF, the retirement-focused instrument, for the long term can do the trick with the power of compounding. The longer the money stays invested, the quicker it grows.
Interest rate
The interest rate on PPF is reviewed every quarter and may change depending on government announcements. At present, it offers a tax-free return of 7.1 percent annually. This fixed rate of return brings in an element of predictability in the gains one can expect when saving money in PPF.
Maturity
The maturity period of the PPF account is 15 years. However, the same can be extended within one year of maturity for a further five years and so on. Also, the PPF account can remain active even after maturity without making any fresh contributions. It continues earning tax-free interest after maturity, according to experts.
Why you should invest in PPF before the fifth of any month?
The answer is that the interest rate offered on PPF accounts is calculated on the minimum balance in the account between the fifth day of the month and the last day of the month. The interest on the amount deposited is calculated every month in PPF, but the interest is credited into the account at the end of the financial year, that is, on March 31 of every year.
The interest becomes payable for that month if the deposit is made before the fifth of that month. So, one can get the maximum interest on interest if the amount is deposited before the fifth. Somebody, who does it after the fifth day of the month, may lose out on substantial interest income for that particular month.
Premature closure or withdrawal
PPF accounts allow investors to make premature or partial withdrawals from the sixth year onward. However, it is limited to one withdrawal per financial year. Also, you can only withdraw up to 50 percent of the amount accumulated in the account at the end of the previous financial year.
PPF investors are allowed to prematurely close their account after five years from the date of opening their account on meeting certain conditions.
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