PPF is my favorite tax-saving funding.
Actually, I like PPF a lot that I’d put money into PPF even when it didn’t provide any tax profit beneath Part 80C.
On this submit, I’ll share the explanations for my choice for PPF.
#1 PPF is a wonderful fastened revenue product.
Aside from EPF and PPF, there isn’t a product that gives you tax profit on funding and tax-free and risk-free returns. And I don’t have EPF.
Examine PPF returns in opposition to the post-tax returns from a financial institution fixed-deposit or a authorities bond. PPF would be the probably winner.
Thus, PPF is an computerized selection for long run fastened revenue portfolio.
Between EPF and PPF
- You have to be a salaried worker to contribute to EPF (that guidelines me out). However, anybody can contribute to PPF.
- Each PPF and EPF are EEE merchandise. Nevertheless, curiosity on EPF contributions exceeding Rs 2.5 lacs every year is taxable.
- EPF often gives a greater return than PPF.
- EPF account can solely be continued till your retirement. The curiosity in the course of the non-contributory interval turns into taxable (even earlier than retirement). In sure circumstances, the EPF account can develop into inoperative and such accounts don’t even curiosity. Here’s a good primer by Sreekanth on how EPF curiosity is taxed in case you don’t contribute.
- PPF account, then again, could be continued for all times. And also you earn tax-free curiosity till you withdraw.
#2 You’ll be able to’t make investments greater than Rs 1.5 lacs every year
In the event you skip investing in PPF this 12 months, you CANNOT make up for the missed funding within the coming years. The utmost funding is capped at Rs 1.5 lacs per monetary 12 months per grownup.
Distinction this with different tax-saving merchandise like ELSS, the place there isn’t a higher cap on annual funding. You’ll be able to even put Rs 20 lacs in a 12 months.
In case your portfolio asset allocation permits, it’s also possible to put money into PPF within the title of your partner and children. Between you and your partner, you’ll be able to put a complete of Rs 3 lacs per monetary 12 months.
Be aware that each minor’s PPF account will need to have a guardian. And the PPF guidelines are a bit difficult right here.
In a monetary 12 months, you can not make investments greater than Rs 1.5 lacs cumulatively in your PPF account or these PPF accounts the place you’re the guardian. The surplus quantity doesn’t earn any curiosity.
Therefore, if you’re the guardian in your daughter’s PPF account and put Rs 1 lac in your PPF account within the April, you can not put greater than a cumulative of Rs 50,000 for the remainder of the 12 months in your and your daughter’s PPF account.
You may ask, what’s the purpose of opening PPF accounts for teenagers then?
A number of causes.
The restriction is just till the youngsters are minors. As soon as your daughter turns into an grownup (18 years), her PPF account shall rely as a separate PPF account. And also you (and your daughter) can contribute 1.5 lacs + 1.5 lacs = 3 lacs to PPF accounts.
Moreover, by opening the PPF account early for teenagers, you start the countdown to preliminary maturity of 15 years early. And this brings us to the subsequent level.
#3 PPF turns into tremendous versatile after preliminary maturity of 15 years
It’s not simple to withdraw from PPF in the course of the first 15 years. Nevertheless, as soon as the account completes 15 years, the withdrawal restrictions go down sharply.
By the way in which, you should not have to shut the PPF account after completion of 15 years. You’ve gotten an choice of extending your PPF account in blocks of 5 years. And you are able to do this any variety of occasions. This implies you’ll be able to proceed the PPF account for all times.
Relying in your choice, you’ll be able to lengthen the account in blocks of 5 years with or with out contribution. “Extension with out contribution” is the default mode. The stability and subsequent contributions proceed to earn curiosity till withdrawn.
In the event you lengthen with out contribution, you’ll be able to withdraw any quantity (even 100% of the stability) at any time limit. Simply 1 restriction. 1 withdrawal every year.
In the event you lengthen with contribution, you’ll be able to withdraw as much as 60% of the excellent stability on the time of extension over the subsequent 5 years. 1 withdrawal every year.
A wise investor may use PPF as a wonderful pension instrument.
Be aware: About my assertion that I’d put money into PPF even when it didn’t provide any tax advantages, this may occasionally already be taking place in your case. Tax profit beneath Part 80C is capped at 1.5 lacs every year. Due to this fact, in case you contribute to EPF, repay principal on housing mortgage, or pay life insurance coverage coverage premium, your Part 80C quota could already be full. In such a case, any PPF funding received’t fetch you any tax profit beneath Part 80C (or comes out of your post-tax revenue). In the event you nonetheless put money into PPF, you make investments due to advantage within the product.
My favorite tax-saving funding is PPF. Which is yours?