Public Provident Fund (PPF)
The PPF Scheme was introduced primarily for non-government employees, self employed personnel to encourage savings and provide income tax benefits. Employees, who contribute to other provident fund accounts, have also been allowed to open PPF accounts. A subscriber can utilize his account as a pension account if a certain sum is deposited into it every year regularly.
The rate of interest is 8% per annum (compounded yearly). The scheme has the longest tenure of 15 years, which can be extended on 5 years basis thereafter, without any limit. Deposits qualify for deduction from income under Sec. 80C of IT Act. Interest income is completely tax-free. The scheme does not permit any withdrawal for the first six years after which limited withdrawal is permitted without any penalty.
The scheme also provides loan facility after one year of opening of account but before completion of 5 years, after which normal withdrawals can be availed. The annual investment is subject to a ceiling of Rs.70,000. In the past, this ceiling has been in-sync with the limit of deduction under Section 80C of IT Act.
However, when the limit under IT Act was revised to 1 lakh, this ceiling was not revised. In accordance with the views of the Department of Posts and most of the State Governments, the Committee recommends an increase in the limit to 1 lakh to coincide with the ceiling on Section 80C.