1 Jul 2017

Benefits Of PPF Account

Finance feed by:

CA Deepak Kumar Agarwal
B.com,CA
CA in Job
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   •    12 Year 1 Month  experience

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. 1,50,000.

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. 1,50,000 per annum qualifies for IT Rebate under section 80 C of IT Act.
• The current rate of interest on PPF is at 8%.
• 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 - 8,000 1,08,000
2 1,08,000 1,00,000 16,640 2,24,640
3 2,24,640 1,00,000 25,971 3,50,611

4 3,50,611 1,00,000 36,049 4,86,660
5 4,86,660 1,00,000 46,933 6,33,593
6 6,33,593 1,00,000 58,687 7,92,280
7 7,92,280 1,00,000 71,382 9,63,663
8 9,63,663 1,00,000 85,093 11,48,756
9 11,48,756 1,00,000 99,900 13,48,656
10 13,48,656 1,00,000 1,15,892 15,64,549
11 15,64,549 1,00,000 1,33,164 17,97,713
12 17,97,713 1,00,000 1,51,817 20,49,530
13 20,49,530 1,00,000 1,71,962 23,21,492
14 23,21,492 1,00,000 1,93,719 26,15,211
15 26,15,211 1,00,000 2,17,217 29,32,428

Invest in PPF and reap benefits.

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