Saturday, 2 March 2013

BENEFITS OF PPF ACCOUNT


PPF account is one of the best and safe investments for an individual. A government-guaranteed fixed income security, this is very apt as a long-term savings instrument. Yearly subscriptions can be as low as Rs. 500 to as high as Rs. 1,00,000.

 It counts being among the most secure investments you can have in this country. The interest earned on the PPF subscription is compounded; that means you not only earn interest in the money you put in, but you earn interest on the interest earned too. All the balance that accumulates over time is exempt from wealth tax.

 A flip side, its an extremely illiquid investment instrument. Its lengthy lock-in period works out to 16 years since the last contribution is made in the 16th financial year. In all, the PPF is a very good savings instrument, and you should consider investing in it.

  • Ideal investment option for both salaried as well as self employed classes.
  • Investment up to INR. 1,00,000 per annum qualifies for IT Rebate under section 80 C of IT Act.
  • The rate of interest on the subscriptions made to the fund on or after 01.12.2011 and balances at credit of the subscriber in the existing PPF account shall bear interest at the rate of eight point eight per cent (8.80%) per annum.
  • Loan facility available from 3rd financial year upto 5th financial year. The rate of interest charged on loan taken by the subscriber of a PPF account on or after 01.12.2011 shall be 2% p.a. However, the rate of interest of 1% p.a. shall continue to be charged on the loans already taken or taken up to 30.11.2011.
  • Withdrawal permitted from 6th financial year.
  • Free from court attachment.
  • An individual cannot invest on behalf of HUF (Hindu Undivided Family) or Association of persons.

An example is shown below describing, if an individual invest Rs 1,00,000/ year, then in 15 years he will have an amount of Rs 30.64 lakhs. The interest portion is completely tax free. Principal portion can be claimed as a deduction under Sec 80C.

Year
Principal
YoY investment
Interest
P+I
1
           1,00,000
                           -  
                     8,500
           1,08,500
2
           1,08,500
              1,00,000
                   17,723
           2,26,223
3
           2,26,223
              1,00,000
                   27,729
           3,53,951
4
           3,53,951
              1,00,000
                   38,586
           4,92,537
5
           4,92,537
              1,00,000
                   50,366
           6,42,903
6
           6,42,903
              1,00,000
                   63,147
           8,06,050
7
           8,06,050
              1,00,000
                   77,014
           9,83,064
8
           9,83,064
              1,00,000
                   92,060
         11,75,124
9
         11,75,124
              1,00,000
               1,08,386
         13,83,510
10
         13,83,510
              1,00,000
               1,26,098
         16,09,608
11
         16,09,608
              1,00,000
               1,45,317
         18,54,925
12
         18,54,925
              1,00,000
               1,66,169
         21,21,094
13
         21,21,094
              1,00,000
               1,88,793
         24,09,887
14
         24,09,887
              1,00,000
               2,13,340
         27,23,227
15
         27,23,227
              1,00,000
               2,39,974
         30,63,201

 

Invest in PPF and enjoy the benefits.

10 comments:

  1. the above illastration is true or this will change?

    ReplyDelete
    Replies
    1. Rates are updated every year at the beginning of financial year

      Delete
  2. Best information in layman words..Thanks sir

    ReplyDelete
  3. Excellent sir

    ReplyDelete
  4. thanks for the valuable information

    ReplyDelete
  5. one more doubt is that how much loan is permitted? And this facility of loan can be take only between 3 to 5 years and after this period is it not permitted to take loan?

    ReplyDelete
    Replies
    1. I believe you can take a loan after 3 years only.

      Delete
  6. Another observation: In addition to the P+I accrued over 15 years, there's also a saving in taxes paid over this period right?

    ReplyDelete
  7. Sanjiv tripathi18 April 2014 at 06:38

    Is there any pension facility or accidental cover in PPF account ?

    ReplyDelete