Tuesday, January 14, 2014

Public Provident Fund : The best Tax Saving option in debt category

PPF: The Best option in Debt segment

First of all, Happy Makar Sankrant to all of my readers. As you know tax planning season already begun and the investor are busy to find the best tax saving instrument. When we talk about investment, it can be divided in two broad category: 1. Equity segment 2. Debt segment. Both categories have their own different characteristics. PPF (Public Provident Fund) is the best option available in the debt segment. Here we are going to discuss in details about this category:

Public Provident Fund (PPF) :

All Indian residents are eligible for PPF scheme. NRI are not eligible for this scheme. It can be opened with the name of minor by the legal guardian. However, each person allowed have only one PPF account. If person become NRI after opening the PPF, in that case subscription would be continue till maturity.

A minimum yearly deposit of Rs 500 needed to open and maintain the account. You cannot deposit more than 12 times in a financial year but you can invest more than 1 times in a particular month. If you deposit before 5th of any month then only you will get the interest for that month. The maximum limit of deposit is Rs 1 lakh in a particular financial year. Online NEFT transfer facility is also available in these days in many banks.

The govt of India decide every year the return rate of the PPF. The rate of interest for current FY year 2013-14 is 8.7%. The minimum tenure of the PPF investment is 15 years. You can extend it in 5 years with or without contribution after 15 year. You can also withdraw up to 60% amount at the time of completion of 15 years.

Loan and withdrawal facility are also available in PPF account also. The rate of interest charged on loan 2% more than the prevailing on interest rate on PPF after 1st December, 2011.  If you have taken loan before 1st Dec 2011 then you have to pay interest on loan only 1% more than prevailing PPF rate. Pre mature withdrawal allowed from the end of the sixth financial year from when the PPF commenced. The maximum amount can be withdraw is equal to 50% of the amount in the account at the end of the 4th year preceding the year in which the amount is withdrawal or the end of the preceding year whichever is lower.

If PPF account holder does not deposit Rs 500 during entire financial year, the PPF account would be deactivated. To activate the account you have to pay Rs 50 penalty and minimum Rs 500 for each inactive year. Nominee facility is also available and you can appoint more than 1 nominee and can allocate the particular percentage to each nominee.

Annual contribution qualify for tax exemption under section 80C with maximum limit of Rs 1 Lakh including all instruments available under this section. The interest earned on contribution and withdrawal are also exempt from tax. It is the safest option for conservative investors who do not want take risk. For your information we are providing the interest rate offer by the PPF over the time:

  • 01/04/1986  to 14/01/2000    :   12%
  • 15/01/2000  to  28/02/2001   :   11%
  • 01/03/2001  to  28/02/2002   :   10.5 % 
  • 01/03/2002  to  28/02/2003   :   9% 
  • 01/03/2003  to  30/11/2011   :   8%
  • 01/12/2011  to  31/03/2012   :   8.6%
  • 01/04/2012  to  31/03/2013   :   8.8%
  • 01/04/2013  to   onwards        :   8.7%

Once again my best wish to all of you for good financial health and physical health on the eve of Makar Sankranti. For more detail and any other query related investment, you can contact me through my email.

Warm regards,

Arvind Trivedi
Certified Financial Planner


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