Public Provident Fund is one of the most popular small savings schemes backed by the government. It allows account holders to deposit any amount between Rs 500.00 and Rs 1,50,000 per annum. Currently, the rate of interest on the PPF deposit offered by the government is 8%.
Thie interest is calculated on the minimum balance in the PPF account between 5th day and end of the month. The interest ate is paid on 31st March every year, according to the official website of India’s largest lender State Bank of India (SBI).
As the interest rate on PPF deposit is high, aspiring investors often wonder if they can invest more than Rs 1.5 lakh in the account per year. You can, but there is a catch.
An investor can invest over Rs 1.5 lakh/year in the PPF account but he/she is advised against doing that. This is so because the interst rate offered on the PPF deposit would not apply to any amount above the maximum limit.
SBI says, “The subscriber should not deposit more than Rs 1,50,000 per annum as the excess amount will neither earn any interest nor will be eligible for rebate under Income Tax Act. The amount can be deposited in lump sum or in a maximum of 12 installments per year.”
So if you have more than Rs 1.5 lakh to deposit, you should opt for other avenues like Fixed Deposits, Mutual Funds or equties.
There is a lock-in period of 15 years on PPF deposits. However, you can extend the deposit period by submitting an application for one or more blocks of five years each. The PPF deposits and interest income is totally exempt from Income Tax. Moreover, the amount outstanding to the credit is fully exempted from Wealth Tax.
The government currently allows premature closure of a PPF account on specified grounds upon completion of five financial years from the date of opening of account.