What is Public Provident Fund?
Answer by Sameer Kulkarni:
NOTE : Applies to Indians
One thing you must do is open PPF.
Yes, Public Provident fund.
What is PPF?
The Public Provident Fund is savings-cum-tax-saving instrument in India, introduced by the National Savings Institute of the Ministry of Finance in 1968. The aim of the scheme is to mobilize small savings by offering an investment with reasonable returns combined with income tax benefits.
Why should I do that?
The rate of interest at present is 8.7% per annum, which is also tax-free. The entire balance can be withdrawn on maturity. Interest received is tax free. The maximum amount which can be deposited every year is Rs. 1,50,000 in an account at present. The interest earned on the PPF subscription is compounded annually. All the balance that accumulates over time is exempt from wealth tax. Moreover, it has low risk – risk attached is Government risk.
So,suppose If you deposit yearly 1,50,000 rupees for 15 years then,
By end of 15 years term it will amount to 4675913.64 rupees.
Total Investment of 2250000 rupees
and Total (Tax free Interest) of 2425913.64 rupees.
So at the age of 33 you will have 2425913.64 rupees (earned without Tax).
Interest earned is tax exempted and withdrawal is also tax exempted. Interest earned is fully exempted from tax without any limits. Annual contributions qualify for tax rebate under section 80c of income tax. Contributions to PPF accounts of the spouse and children are also eligible. The scheme is fully guaranteed by the Central Government.
Many people realize about this when they start earning.If you can afford to invest money now, then this is the good way to begin.