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PPF: tax-saving mantra or powerful planning fund?
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Tax rebates on principal investment, exemption from wealth tax, totally tax-free interest – no wonder most Indians equate the Public Provident Fund (PPF) with tax saving. But the PPF is much more than a tax- saving device – it is a good small savings option and a powerful tool for retirement planning. Impressed? Read on and get to know more about this unique scheme. What it takes
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Visit your nearest post office or nationalized bank branch. Open an account in your own name or in the name of your minor child by investing a minimum of Rs. 500. You can invest a maximum of Rs.70, 000 every year, in up to 12 instalments.
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If you are an NRI with a Non-resident Ordinary (NRO) account in India, you can invest in PPF from this account. PPF is also open to Hindu Undivided families. What you get -
The interest rate is 8%, compounded annually.
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Your PPF contributions are eligible for a tax rebate under Section 88 of the IT Act.
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The balance accumulated over the years is exempt from wealth tax.
The pros -
The PPF is as safe a long-term investment as you can get. Your money is in the hands of the central government – nothing can happen to it.
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With a fifteen year duration, this is among the few schemes that incubate the much-needed nest egg for you. Many people look at the PPF as a retirement savings plan for this reason.
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You can take loans from the account starting from the fourth year – the loan should not exceed 25% of the account amount. From the seventh year, you may withdraw up to 50% of your deposit.
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The PPF is very flexible in terms of amount, mode of investment, and number of instalments.
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Needless to say, it is a great way to save tax. The cons -
The fifteen year lock-in period translates into a loss of liquidity – you can’t get your money when you need it, unlike, say, an investment in shares.
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The interest rate is fixed by the government annually, and keeps fluctuating. The rate was 12% around 8 years ago, but kept declining steadily to the current figure of 8%. The verdict
The PPF is not the solution for your day-to-day cash needs, but it is one of the best options available for long-term investment and tax relief. What do you think of the PPF? Have you gained from investing in it? Are there are far quicker ways to make your money to grow today which make PPF redundant? Tell us. You may also be interested in :
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