PPF rules provide that an annual investment of up to Rs 1.5 lakh qualifies for a tax credit under Section 80C of the Income Tax Act 1961.
New Delhi: PPF (Public Provident Fund) is a small savings scheme that offers a significant risk-free return. The best part is that the risk-free return is tax-free.
PPF is a long-term debt investment instrument that falls under the Exempt-Exempt-Exempt (EEE) category, which means that investments are tax-free, as are interest and withdrawals. One of the most significant benefits of the PPF is that it provides a guaranteed tax-free return, which is not available with other long-term investment tools such as NPS, mutual fund SIPs, and so on. Although life insurance plans provide tax-free returns, they are not guaranteed, unlike PPF, which provides guaranteed returns.
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For risk-averse individuals, the PPF is one of the most appealing investment options. PPF rules provide that an annual investment of up to Rs 1.5 lakh qualifies for a tax credit under Section 80C of the Income Tax Act 1961. Because PPF returns are relatively high compared to other fixed investment products, one can easily achieve long-term inflation-beating returns. The government adjusts the PPF interest rate every quarter. PPF will yield a 7.1 percent return in the current quarter.
If we assume that the current PPF interest rate of 7.1 percent remains constant over time, one can easily build up a sizable retirement fund of over Rs 1 crore by the time he retires.
PPFs have a 15-year maturity period. Another significant benefit of PPF is that it can be extended by a block of five years several times after the initial term has expired. As a result of this benefit, it can be used to save for long-term goals such as retirement. If you create a PPF account between the ages of 25 and 30 and invest Rs 12,500 every month (Rs 1.5 lakh yearly), you will have accumulated Rs 40.68 lakh in 15 years, providing the rate of return remains constant.
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You can easily complete 35 years of investment term before retirement if you extend the account by a block of 5 years twice. If you invest Rs 1.5 lakh every year for 25 years, you’ll have Rs 1,03,08,012 crore at maturity, provided the interest rate stays the same at 7.1 percent. According to the PPF calculator, you would deposit Rs 37,50,000 out of this Rs 1.03 crore, while the interest earned will be Rs 65,58,012.
