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Wednesday, November 30, 2022

Why PPF is One of The Most Preferred Tax Saving Investments

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Erric Ravi
Erric Ravihttps://www.gurgaontimes.co.in
Erric Ravi is an entrepreneur, speaker & the founder of Storify News and Recent News He is the Co-Founder of The Storify News Times. Forbes calls him a top influencer of Chief Marketing Officers and the world’s top social marketing talent. Entrepreneur lists him among 50 online marketing influencers to watch. Inc.com has him on the list of 20 digital marketing experts to follow on Twitter. Oanalytica named him #1 Global Content Marketing Influencer. BizHUMM ranks him as the world’s #1 business blogger.

Have you been saving up for retirement? If you have, or at least have been thinking about – what is the first method that you chose in order to move forward with this idea? It is most probably the public provident fund (PPF), right?

Well, what is the best part about the public provident fund is its tax benefits. The tax benefits can be far beyond what you can imagine. So, here – we are going to speak all about it. But before we can get going, let’s talk about the basics of it.

What is the Public Provident Fund?

The Public Provident Fund – which is a popular long-term saving system that encourages tiny contributions like investments and earns dividends on them. PPF is a government-sponsored savings plan that offers a reasonable rate of interest and returns on investments. This strategy is typically used as a prerequisite for meeting financial obligations upon retirement. 

It has a 15-year term that can be extended in 5-year increments upon the subscriber’s request. In rare circumstances, partial withdrawal is also permitted.

PPF has several advantages in terms of interest rates, security, and taxation. Loans and partial withdrawals are also permitted after a few years after account opening. In this post, we will discuss the main pros and cons of PPF.

Taxability of the Interest from PPF

Investors choose PPF because it belongs under the Exemption- Exemption- Exemption (EEE) category; hence the answer to whether public provident fund interest is taxed or not. The first exemption applies to deposits made into a PPF account. Deposits to a PPF account are tax-free up to a maximum of Rs. 1.5 lakh each fiscal year under Section 80C. A tax-saving fixed deposit can generate more interest than a savings account.

The second exception is for the interest generated on PPF deposits. So, if you’re wondering whether PPF interest is taxed, the answer is no, it’s not.

The third PPF tax break is on the maturity amount. When your public provident fund account reaches its maturity after 15 years, the maturity profits you receive at the time of withdrawal will likewise be tax-free. Given the EEE benefit provided by the Public Provident Fund, it is unquestionably one of the greatest solutions for accumulating long-term savings.

The Tax Saving Benefit of the Public Provident Fund

When it comes to tax-saving investment solutions, the Public Provident Fund is a popular choice. Here is the PPF Tax Benefit that you need to know about.

a) Triple Tax Exemption

Public provident fund is one of the very few investment products that qualify for triple tax exemptions, known as exempt-exempt-exempt (EEE). This means that you are exempt from paying taxes at the time of investment, accrual, and withdrawal.

It gives a deduction of up to Rs 1.5 lakhs on investments that are made in each fiscal year under section 80C of the Income-tax Act of 1961. The interest that has been earned each year is also tax-free. Third, the cumulative corpus that you remove at maturity is also tax-free, making it a tax-free income.

b) The Interest Rates

The public provident fund is an investment product in which even self-employed individuals can invest. The current PPF interest rate is 7.1%, which is greater than the interest rate on other small savings plans such as the National Savings Certificate (NSC) and the Post Office 5-year Time Deposit.

Although the PPF interest rate is frequently not far behind the EPF rate, there have only been a few cases when the PPF interest rate has been higher than the EPF rate.

c) Floating Rates

One of the major advantages of the public provident fund over products such as the 5-year tax-saving bank FD is that it offers floating rates. Unlike fixed deposits – where the interest rate is pre-fixed for the duration of the investment, the PPF interest rate is variable and can change every quarter. When the total interest rate in the economy begins to climb, the interest rate on PPF will rise as well, and your investment will begin to yield bigger returns.

d) The Tax Haven

If you are a conservative investor – or you are looking for tax savings with guaranteed returns and investment security, PPF is one of the safest and best solutions. When most large banks are currently offering 5.5% or lower interest rates on their 5-year tax-saving FDs, the interest rate given on PPF comes with a significant premium.

e) Long Term Compounding Power

If you let your money grow over time, the force of compounding can work wonders for your investment. A public provident fund account has a 15-year maturity period. After the account matures, you have the option of withdrawing the full sum and closing the account or extending it for another five years with or without further contributions. The extension can be done in five-year increments indefinitely.

But, before you jump right in considering these benefits – you might want to know a few things that you just cannot miss about this investment here.

Things to Know About the PPF Investment

Before investing in the public provident fund program, as with any other financial scheme, there are various aspects to consider. Examine them:

1) The Lock-in Period – Although there are methods to make partial withdrawals before maturity, there are different limits on complete withdrawal or closing of a PPF account prior to maturity. As a result, PPF is primarily for those who want to create a tax-free corpus for long-term financial goals such as securing post-retirement income.

2) The Rates – PPF interest rate is one of the highest among assured returns plans among government-backed tax saving investments, making it one of the most profitable investments in India. While other investments, such as Employees Provident Fund, Voluntary Provident Fund (VPF), and Sukanya Sammridhi Yojana (SSY), offer better returns with comparable advantages, there are significant qualifying restrictions.

3) The Taxes – PPF investments, because of their EEE classification, provide tax benefits to investors regardless of their tax rate. Annual PPF investment up to the maximum amount of Rs. 1.5 lakh in a fiscal year might minimize tax obligation by up to Rs. 45,000 plus cess for investors in the highest 30% tax band. As an added bonus, the PPF maturity amount will be tax-free.

4) The Back-Up – As previously stated, the Public Provident Fund is a government-backed system, and the Government of India guarantees the returns on PPF investments. As a result, PPF is a good investment for risk-averse investors looking for assured returns. Furthermore, the scheme’s interest rate is set by the Government of India and is reviewed regularly. 

The Bottom Line

Saving for your retirement starts in your 20s – and the earlier you start, the better it is for you. But, when you are planning on that kick-start, there is no better way than the public provident fund. Read more latest news.

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