Hi
Friends,
Most
of us are not aware of tax planning or tend to give a low weightage towards
this. I have seen lots of my friends who have messed up with their tax planning
and end up giving generous tax to Govt at the end of financial year closing. In
the era of single digits hikes, it’s prudent that we save most of the hard
earned salary by proper financial planning.
Hence
it’s beneficial that you know some good investment horizons to save your hard
earn Money. When we talk about tax planning, 1st option that comes
in our mind is PPF. But we hardly know all Good things and technicalities about
PPF. Here are some of the things you should know about your trusted tax saving
instrument.
Account Opening
The
Public Provident Fund (PPF) is one of the most popular tax-saving schemes,
which can be opened in a post office or designated bank branches (SBI/ICICI).
Interest Rate
The interest rate offered on the PPF is no
longer fixed, but linked to the market. It is 0.25% above the 10-year
government bond yield. This does not mean that the rate will change on a
day-to-day basis. It will be announced every year in April, based on the
average bond yield in the previous year. For the current financial year, it is
8.7%.
How does the interest accrue?
This is very Important part that you should aware of. The interest on your PPF balance is compounded annually, but the
calculation is done every month. The
interest is calculated on the lowest
balance between the fifth and last day of every month.
For Example, If you have Rs 1000 in your
account from 1st to 5th day of the month, You ‘ll get the
interest on 1000 rs only even if you credit any amount after 5th to
End of month. You will get interest on lowest balance between the fifth and
last day of every month.
Hence it’s advisable to credit your PPF account between 1st and
5th of every month and If possible make the entire deposit during
1-5th April of every year to get full year interest. I know it’s tough to get 1 Lac investment during
start of financial year, hence you can deposit every month as well to get
maximum benefit. If you can’t invest 1 lac amount at the start of the financial
year, you can start the SIP for it and invest
5-10k monthly as per your capacity.
Tax Benefit and Min/Max investment-
It’s and EEE investment, hence your final
amount after 15 years is tax free. You are eligible for tax benefit under 80C
as per you tax bracket( Max 30%). You can invest maximum amount of 1 lac only. You have to put in at least Rs
500 in your PPF account in a year. You will be levied a penalty of Rs 50 if you
fail to do so.
Prior withdrawal/ Loan
If you need money, you can withdraw after the
sixth year, but it cannot exceed 50% of the balance at the end of fourth year,
or the immediate preceding year, whichever is lower. You can also withdraw only
once in a financial year. You can also take a loan against it, but this cannot
exceed 25% of the balance in the preceding year. The loan is charged at 2% till
36 months, and 6% for longer tenures. Till a loan is repaid, you can't take
more loans.
Maturity-
It matures after 15 Years, but you can extend
the tenure in blocks of five years after maturity and continue to get the
normal rate of interest.
What are the nomination rules?
Don’t forget to nominate someone. Nomination is
available in the name of one or more persons. Nominee cannot continue account
of the deceased subscriber in his/ her own name.
Sample Investment and Returns-
Investment – 1 lacs/year ( on 1st
April )
Current Rate- 8.7%
Duration- 15 Years
Returns- You will get approx 31 Lacs after 15
years of your investment that too tax free.
An IRR return of approx 13% for the highest
tax bracket person.
Happy Investing.. :)
