The Public Provident Fund (PPF) is one of the most sought after long-term investments to save taxes more efficiently and also earn interest at the same time. PPF is a tax saving investment scheme that provides tax redemption under section 80C of the Income Tax Act.
Any individual can open an account in her name at any nationalized or government-licensed bank or post office at any time in her life. A minor can also have a PPF account where an adult acts as guardian of the account and can avail benefits on behalf of the minor. The scheme not only reduces the tax liability of the deposited money, but also the interest and the amount of the tax due are omitted.
The Public Provident Fund or PPF is one of the most popular instruments in India. It is a highly efficient tax-saving instrument, providing you with SEC 80C tax benefits as well as tax-free interest income. Here are some disadvantages of the PPF account.
5 Disadvantages of the PPF Account
1. Less liquid
You cannot withdraw from your PPF until you have completed seven years. This is a major drawback of the scheme. After completing the 7 years, you can withdraw only 50 percent of the amount.
The loans can be used from the 3rd fiscal year excluding the year of the deposit. Therefore, if you think you need large sums of money, consider other liquid instruments besides the PPF.
2. Trusts should stay away
Whereas previously, Hindu Undivided Families (HUFs) and Trusts could invest in PPFs, that facility has now been withdrawn. HUFs and trusts must now look to other investment vehicles.
3. Joint accounts are not allowed in a PPF
Joint bank accounts are not allowed on PPF, unless you open the same account with a minor. However, nominations are allowed. Being a very long-term instrument, you must make a nomination in the PPF account. This will avoid inconvenience at a later stage, especially for the legal heir.
4. NRIs cannot open new accounts at PPF
NRIs cannot open new accounts. However, if you had an account as an Indian resident and have now become an NRI, you can continue to contribute to the PPF. Again, he will receive benefits such as tax benefits.
5. PPF limit capped at Rs 1.5 lakh
The amount you can invest in PPF each year is limited to Rs 1.5 lakh per year. The limit was raised in the 2014-15 Union Budget from Rs 1 lakh to Rs 1.5 lakh.