Pensions : Tax Planning & PPF
Time has come for all of us to make tax-planning decision for the current fiscal. One major avenue for such tax planning is making investment. Though the intention of every taxpayer is tax saving one can never neglect the other benefits attached to the investments. . More than anything, they want their money to be placed in safe hands. One such mode of investment, which ensures good return, utmost safety and easy liquidity coupled with tax benefits is by contributing to the Public Provident Fund.
Opening an account
If you are a salaried person or a pensioner or a self employed then you can participate in PPF by just opening an account with State Bank Of India or any of its subsidiaries, for as low as Rs.500/-. (earlier it was Rs.100). The deposit in to such an account can be made in the multiples of Rs.5/- up to a sum of Rs.70000(earlier it was Rs.60,000). You can open the PPF account on behalf of your minor child too. Even if you are a contributor to the employees’ provident fund schemes given by the employer, you can still open a PPF account.
Interest
The interest on the investment is 9% p.a compounded annually, cool isn’t it? The interest will be credited to the account at the end of each year but it will be payable only at the time of maturity.
Maturity
The maturity period of the investment is 15 years and thereafter the account can be extended for an additional block of 5 years each time.
Loan
Loan can be availed from the 3rd year up to 6th year for a sum not exceeding 25% of the amount to the credit at the end of the financial year preceding the year in which the loan is applied for. Such loan has to be repaid either as lump sum or in instalments for a period not exceeding 36 months. Interest at the rate of 1% is chargeable on the loan amount taken, if repaid within 36 months, beyond which the rate hikes up to 6%.
Liquidity
You can withdraw from your account every year, from the beginning of 7th year of opening the account. But only one withdrawal is permissible in one year. The amount of withdrawal cannot exceed 50% of the balance as at the end of the 4th year or the year immediately preceding the year of withdrawal, whichever is lower. If any loan taken earlier remains unpaid, then it shall be deducted for arriving at the balance.However, during the extended period of 5years,you can withdraw 60% of the balance to the credit at the beginning of such extended period.
Safety
Regarding the safety of your money, there is absolutely no need to be panic since PPF is risk free. The balance standing to the credit of the account cannot be attached even by an order or decree of the court.
Tax benefits
Regarding the tax benefits, any amount contributed to the account during the year is eligible for claiming rebate u/s 88 of the Income Tax Act, 1961.The interest credited to the account is totally exempt u/s 10(11) of the act. However PPF interest does not qualify for rebate u/s 88 unlike interest on NSC. . The balance in PPF account is not taxable for wealth tax purposes.
At this point, it is necessary to note that under Employees’ Provident Fund scheme or General Provident Fund schemes, uniform contribution will have to be made every month. But in PPF, contribution may vary from month to month. A taxpayer may wait till March, work out the tax payable by him for the year and then make a lump sum contribution to the account at the end of the year according to the need to avail the maximum rebate u/s 88.
Having discussed so far about PPF, it is needless to say that contribution to PPF account not only helps a taxpayer in reducing his tax liability, but also inculcates the habit of saving. If you are on the look out for a wise investment policy, PPF can be one of your options.
