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Public Provident Fund (PPF)
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The most recommended Tax Saving Option


Public Provident Fund is a very good choice as a tax saving option as welll as investment option. PPF investments fall into EEE category ie Exempt, Exempt, Exempt, category. You get deduction of your initial investment u/s 80C, Interest on PPF and later on your withdrawal is completely tax exempt. PPF is most sought for as a planning for retirement.
Where Can a PPF Account be opened?

One can open a PPF account with a nationalised bank or post office. Almost all Banks have the facility of PPF account. Now many banks provide facility of opening an online PPF account. Many banks have facility to link your PPF with your savings bank account, which allows you to deposit money in your PPF through online transfer.

PPF can also be opened in the name of a minor by his/her parents/guardians. NRIs however are not eligible to open a PPF account.

Minimum & Maximum Contribution

From financial year 2014-15 Rs. 150000/- is the maximum amount which can be deposited to PPF in a year. 
PPF investments are flexible. You can deposit to your PPF once in a month and total 12 times in a year subject to the total investment of Rs. 150000.
It is suggested to invest in your PPF account from 1st to 5th of the month to earn interest for that month too. This small planning will maximize your benefits.

Minimum compulsory yearly contribution is of Rs. 500, failing which your account will be deactivated and a penalty of Rs. 50 per year is imposed to activate the account.

Maturity Period

PPF is a long term savings plan having a maturity period of 15 years which can further be extended in blocks of 5 years. On maturity of PPF ie. after 15 years of opening PPF account, full amount can be withdrawn and total withdrawal is completely tax free.



Withdrawals from PPF


No amount can be withdrawn within the first 6 years. After 6 years only part of the amount as per the PPF rules can be withdrawn. A loan can be taken upto 25% of balance in PPF account in preceeding year. Loan will be chargeable to interest @ 2% more than the PPF deposit interest rate for short term loans(36 months). Interest rate on long term loan is @ 6% more than the PPF deposit interest rate.

In case of death of the account holder, nominee or the legal heir is entitled to receive the balance in PPF account of the deceased even before 5 years. The nominee or legal heirs can not continue the PPF account of the deceased.

Tax Implications
Investment in PPF is eligible as a deduction u/s 80C upto Rs. 150000. Interest earned on PPF is tax free. Withdrawals from PPF are also completely tax free.

PPF is suggested as the best tax saving option as this provides you risk free and tax free returns of approx 10.50 % (considering the tax free part of 7.9% return).

PPF investment is a smart choice for the people who do not want to take risks in their investments and to self employed people as they need to plan for their retirements.




Advantages:
  • Tax free return, ie. interest earned on PPF is tax free
  • Now with many banks online transaction in PPF are possible
  • Minimum amount of investment is just Rs. 500
  • From the financial year 2014-15 total Rs. 150000 can be invested in each year
  • As PPF is government organised fund, its safe to invest in PPF
  • PPF accounts can not be attached by Court Orders
  • Loan can be taken from PPF deposits
  • Withdrawls to some extent are possible
Disadvantages:
  • High lock in period of 15 years
  • Interest rates can vary as interest rates are driven by market changes
  • NRIs & HUFs can not open PPF accounts
  • Withdrawls are allowed only after 6 years and to a limited percentage of total deposit


Other useful links:
Equity Linked Savings Schemes(ELSS)
National Savings Certificates(NSC)
Fixed Deposits(FDs) with Tax benefits
Some Tax Planning Tips



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