The Public Provident Fund (PPF) is a long-term investment option that is available for investors to build a corpus over several years. This has been a popular investment route over the years and now, with the second draft of the Direct Tax Code ensuring that this will retain its tax exemption status in the future, there will be an increased interest. At a time when rising interest rates across the economy has raised several questions for investors about the routes that they can follow, the PPF is one instrument that can feature prominently among the choices. Investors must be clear about the various details before they make their specific investment plans. Here are a few points that need attention:

Investment & tax benefits

There are two aspects to an investment in the PPF. The first is the ability of the investor to actually invest some amount in the instrument, while the second point is the tax benefit that is associated with the instrument. The PPF is a 15-year option that allows the investor to invest a sum of Rs 70,000 per annum in their account. The scheme can be extended in blocks of five years after the completion of the initial period of 15 years for an unlimited number of times.

The tax benefit available for the investment consists of two parts. The first involves the deduction from the taxable income that will be available under Section 80C of the Income Tax Act. The amount of deduction is limited to Rs 70,000. This means that an investor looking to use this route will have to use some other option also in their effort to claim the maximum benefit of Rs 1 lakh that is possible under this section. The other tax benefit is in the form of the earning of the scheme in the form of interest that is also tax free in the hands of the investor. The only point is that the earnings keep accumulating and will be paid out only on the completion of the time period of the scheme. There is a need to take a look at the investment aspect because of the benefits that are available here.

Single account

When it comes to the PPF, there is a maximum amount of Rs 70,000 that can be contributed to an account during the year. So if an investor wants to invest additional sum, this would not be possible. Many people believe that the limit is for an account, so that if they open another account at a different place then they will be able to get an additional benefit. This is not so and no person can have multiple accounts to invest more.

Minor child

There is a provision for an account to be opened in the name of a monir child with a parent as a guardian. However, if an individual thinks that by doing so they can invest a higher sum, then this is not possible. This is due to the fact that the individual limit of Rs 70,000 is considered along with the figure that is invested in the account of a minor for whom the individual is the guardian.

Thus the limit that will be applicable for the purpose of the calculation will take into account the figure invested in both the accounts together. So this will nullify any attempt to get

a higher benefit by contributing an additional

Rs 70,000 in the account

of a minor child after having contributed a similar amount to their own account.

Hindu Undivided Family

The third route that a lot of people also try and use for the purpose of ensuring that they are able to contribute a higher amount to the PPF account is by opening an account in the name of the Hindu Undivided Family (HUF). Earlier, investors could use this option for ensuring a double investment benefit but this has been closed now. From 13 May, 2005 a new PPF account cannot be opened in the name of the HUF. However, if there is an earlier HUF account that has been running before this time period, then this can be continued. Investors on their part need to ensure that there is a proper use of the available limits so that they are able to achieve their financial objectives and that too smoothly.

(The writer is a CA and

Certified Financial Planner. This column will appear every Monday.)