PPF is my favorite tax-saving funding.
In actual fact, I like PPF a lot that I’d spend money on PPF even when it didn’t supply any tax profit underneath Part 80C.
On this publish, I’ll share the explanations for my desire for PPF.
#1 PPF is a wonderful mounted earnings product.
Other than 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 doubtless winner.
Thus, PPF is an automated selection for long run mounted earnings portfolio.
Between EPF and PPF
- You should be a salaried worker to contribute to EPF (that guidelines me out). Then again, anybody can contribute to PPF.
- Each PPF and EPF are EEE merchandise. Nonetheless, curiosity on EPF contributions exceeding Rs 2.5 lacs every year is taxable.
- EPF normally presents 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 change into inoperative and such accounts don’t even curiosity. Here’s a good primer by Sreekanth on how EPF curiosity is taxed if you happen to don’t contribute.
- PPF account, however, will be continued for all times. And also you earn tax-free curiosity till you withdraw.
#2 You may’t make investments greater than Rs 1.5 lacs every year
In the event you skip investing in PPF this yr, you CANNOT make up for the missed funding within the coming years. The utmost funding is capped at Rs 1.5 lacs per monetary yr per grownup.
Distinction this with different tax-saving merchandise like ELSS, the place there isn’t a higher cap on annual funding. You may even put Rs 20 lacs in a yr.
In case your portfolio asset allocation permits, it’s also possible to spend money on PPF within the identify of your partner and youngsters. Between you and your partner, you possibly can put a complete of Rs 3 lacs per monetary yr.
Word that each minor’s PPF account should have a guardian. And the PPF guidelines are a bit difficult right here.
In a monetary yr, you can’t 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, in case you are the guardian in your daughter’s PPF account and put Rs 1 lac in your PPF account within the April, you can’t put greater than a cumulative of Rs 50,000 for the remainder of the yr 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 barely 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.
Learn: PPF or SSY on your daughter’s schooling?
#3 PPF turns into tremendous versatile after preliminary maturity of 15 years
It isn’t straightforward to withdraw from PPF in the course of the first 15 years. Nonetheless, as soon as the account completes 15 years, the withdrawal restrictions go down sharply.
By the way in which, you wouldn’t have to shut the PPF account after completion of 15 years. You’ve 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 possibly can proceed the PPF account for all times.
Relying in your desire, you possibly can prolong 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 prolong with out contribution, you possibly can withdraw any quantity (even 100% of the stability) at any cut-off date. Simply 1 restriction. 1 withdrawal every year.
In the event you prolong with contribution, you possibly can withdraw as much as 60% of the excellent stability on the time of extension over the subsequent 5 years. 1 withdrawal every year.
A sensible investor may use PPF as a wonderful pension software.
Word: About my assertion that I’d spend money on PPF even when it didn’t supply any tax advantages, this may increasingly already be taking place in your case. Tax profit underneath Part 80C is capped at 1.5 lacs every year. Subsequently, if you happen to contribute to EPF, repay principal on housing mortgage, or pay life insurance coverage coverage premium, your Part 80C quota might already be full. In such a case, any PPF funding gained’t fetch you any tax profit underneath Part 80C (or comes out of your post-tax earnings). In the event you nonetheless spend money on PPF, you make investments due to advantage within the product.
My favorite tax-saving funding is PPF. Which is yours?
