Public provident fund or PPF scheme is introduced by the Central Government in 1968 to enable the members of the public to make contributions to it and at the same time avail tax exemptions under section 80C of the Income Tax Act.
Public Provident Fund or PPF is a safe Investment option with attractive returns @ 8.7% per year that are fully tax exempted. Both salary as well as self employed person can invest in a PPF scheme.
Any one can invest and take benefit of high interest and tax deduction compare to other saving schemes introduced by government and non-government agencies like recurring deposits, fixed deposits and NSC. Below in this article, we have listed top 5 reasons to invest in a public provident fund scheme.
Rate of Interest in PPF
At present investment in public provident fund (PPF) scheme gives 8.7% interest per year which is a better investment option in comparison to other investment plans that are available in market.
Interest rate in your PPF account is calculated on the lowest balance between the fifth and the last day of the month. You can maximize your earnings by depositing your contribution between the 1st and the 5th of the month. Interest under the public provident fund (PPF) scheme is compounded annually and credited on 31st of March each year.
As interest on PPF is tax free, an individual is not liable to pay tax on such income.
If your income is falling under 30% bracket then it means you are saving 30% of your interest income by not paying tax.
Minimum and Maximum Investment Limits in Public Provident Fund Scheme
An investor who has opened a PPF account, can invest a minimum amount of Rs 500 per year up to a maximum amount of Rs. 1, 50,000 per year.
You also have the flexibility of investing the entire money in one lump sum subscription or in 12 maximum transactions per year. This is one of the best thing of PPF scheme. No other investment option has this kind of flexibility.
If in a year you do not have money to invest in Public Provident Fund scheme then you can deposit the minimum amount of Rs 500 and comply with the rules of the scheme.
Budget 2014 has proposed to increase the maximum investment limit of Rs. 100000 to Rs. 150000.
Is a better Long Term Investment option
Amount in a Public provident fund (PPF) account can not be completely withdrawn within 15 years. After 15 years the amount can be completely withdrawn (i.e. principle + interest).
As per the present income tax law the entire amount withdrawn will be tax exempted.
Investors also have the flexibility of extending Public provident Fund (PPF) account for any number of times but the extension can be taken in a block period of 5 years.
This type of investment is best suitable if investor wants to keep money every year for their children’s higher education or marriage or to built their own house or for any other purpose where requirement of money is after 15 years.
Tax benefit by investing in PPF scheme
Interest earned on PPF Scheme and investment to public provident fund account up to an annual contribution of Rs 1, 50,000 is tax free. Budget 2014 has increased the maximum limit of Rs. 100000 to Rs. 150000.
Investors can also claim tax exemption for the contribution that he or she is making to public provident fund account every year for the spouse and children. Withdrawal from public provident fund and the amount received at the time of maturity is not taxable.
Other Important factors about Public provident Fund Scheme
- Compare to other investment options a public provident fund account can be opened up with a minimum contribution of Rs 100.
- The investor can also avail loan on his public provident fund (PPF) account as per the public provident fund or PPF scheme prescribed by the Government.
- You can withdraw your deposited amount after the end of the 5 the year subject to the limit prescribed under the public provident fund scheme.
- If you have not made any deposit in a year in public provident fund or PPF account then the account gets discontinued. However, the PPF account can be revived by payment of Rs 50 for every year of discontinuation along with the arrears of subscription of Rs 500 per year.
- A public provident fund account is free from attachment by a court in respect of any debt or liability incurred by the PPF member. It is also exempt from Wealth Tax.
Public provident fund or PPF is one of the best and most popular investment options among Indian.
PPF is the most tax efficient investment which can allow you to claim the entire amount of income tax deduction up to Rs 150000 available under section 80C of income tax act.
Also Read:How to invest in a PPF Scheme