Public Provident Fund: Investment avenue that offers EEE.

Public Provident Fund: Investment avenue that offers EEE.

by 5paisa Research Team Last Updated: 2022-12-13T16:21:41+05:30

PPF is backed by the Government of India which delivers tax efficient returns to investors. The prevailing rate of PPF is 7.1%.

Public Provident Fund (PPF) is one of the best ways to do asset allocation towards fixed income instruments. This is an instrument that offers tax efficient returns to its investors. PPF is backed by the Government of India and also provide a fixed rate which the government announces every quarter. The interest compounding is done annually. Currently, PPFs are providing a 7.1% rate of return. This scheme follows a capital protection strategy and therefore has a conservative approach by usually investing in money market instruments.

The return offered on PPF is amongst the best tax-free returns. It is one of the very few investment options that fall under the EEE tax regime.

Now the question arises, what is the EEE tax regime?

In simple terms, EEE is Exempt-Exempt-Exempt and specifies three kinds of exemptions in tax; first Exempt means an investment qualifies for deduction u/s 80C (subject to a limit of Rs 1.5 lakh a year). Second Exempt means an interest earned is exempt from tax and the third Exempt means there is no tax on the amount received on maturity of the account. We come to know that PPF is tax-free from investment to the withdrawal of the amount invested in PPF.

PPF have a lock-in period of 15 years. On maturity, the investor has the option of withdrawing the proceeds and close the account or extend the account for a block of five years or continue without contribution. The minimum annual investment required is only Rs 500 per annum, giving the investor freedom to invest as per his discretion and available resources. The maximum annual limit of investment is Rs 1,50,000 per annum. An investor has to at least invest a minimum amount every year in his account to keep the PPF account active.

No withdrawals are allowed during the first six years from opening the account. However, at any time after the expiry of six years from the end of the year in which the initial subscription was made, the subscriber/investor, if desires can withdraw from the balance amount to his credit. The amount should not be above 50% of the amount standing to his credit at the end of the fourth year and immediately preceding the year of withdrawal or balance at the end of the preceding financial year, whichever is lower.

Start Investing in 5 mins*

Get Benefits worth 2100* | Rs. 20 Flat Per Order | 0% Brokerage

About the Author

Our research team is composed of some highly qualified research professionals, their expertise range across sectors.

Open Free Demat Account

Resend OTP
Please Enter OTP
Account belongs to

By proceeding, you agree to the T&C.

Start Investing Now!

Open Free Demat Account in 5 mins

Enter Valid Mobile Number