Updated on October 4, 2023
The principal amount in a PPF account refers to the initial money that is invested. For instance, if you open a PPF account with an amount of Rs. 1,00,000 — that becomes your principal amount. This is the money that will earn interest over a period of time as specified by the government. The principal amount you invest in a PPF is eligible for tax deduction under section 80C of the Indian Income Tax Act.
Use of principal in PPF
Let’s delve into how the principal in a PPF can be strategically utilized:
Maximizing Contributions: The more you contribute as your principal amount, the more interest you accumulate over time due to compounding.
Timing your Contributions: Depositing your principal early in the financial year (April) allows it to earn interest for the entire year, maximizing returns.
Tax Planning: By carefully planning your principal contributions, you can efficiently utilize the tax deduction benefits under section 80C of the Income Tax Act.
Securing Loans: The principal amount in your PPF account can serve as security when availing loans from the third financial year onwards, providing a low-interest borrowing option.
Planning for Long-term Goals: Regularly contributing a substantial principal helps achieve long-term financial goals like retirement or children’s education, thanks to the power of compounding.