PPF – The high power tax saver for professionals like dentists
The professionals like dentists and doctors are not covered under the Provident Fund Scheme. For such investors, PPF offers an attractive flexible option to save for long term goals like retirement. The Public Provident Fund (PPF) is the most popular tax savings option in Section 80C. Since the scheme is a government sponsored scheme, there is no need to worry about the security of the amount. The scheme is the most flexible tax saver because you can invest any amount between 500 to 1.5 Lakh in a year depending on your requirement/paying capacity.
PPF – The basic details
It is a 15 year scheme with an option to increase the term in blocks of 5 years at the end of the 15 year period. So, if you are starting the PPF at the age of 30, it will mature when you are 45. But you can extent it in blocks of 5 years any number of times. If you extend it 3 times, it will run till your age 60.
You can open the PPF account in Post office, State Bank and its associate banks and even select private sector banks. Banks like ICICI bank is offering the online facility to pay the PPF account.
You must invest at least 500 in a year to keep the account in force. Otherwise, you have to pay a penalty of 100 to regularize the account. The maximum limit of investment per year is 1.5 Lakh only. You can pay this amount in lump sum or in installments.
The interest on PPF is calculated on the lower of your accumulation on 5th and the last day of the month. It will be better, if you invest before 5th of any month to earn interest for that month.
The interest rate on PPF is decided by government every year and will be declared in advance. The current rate of interest is 8.7%.
Loan facility in PPF
Since it is a 15 year scheme, there will be need for early liquidity. Yes, you can take loan from PPF from the 3rd financial year to the 6th financial year.
If you have opened the PPF account in 1999-2000, you will be eligible to take loan from the year 2001 -2002. The amount of loan will be limited to 25% of the accumulation including the interest at the end of the 2nd immediately preceding year. So, if you are applying loan in the year 2004-05, you will get 25% of your account balance as on 31st March. 2003. You have to repay the loan within 24 months. After repayment, you can again take a loan within the 6th year. The interest rate on this loan will be 2% above the PPF interest rate you receive.
Partial withdrawal from PPF
PPF is meant for long term savings. But to meet any emergencies, from 7th year you are eligible for partial withdrawal from your PPF account. You are eligible for only 1 withdrawal per year.
If you have opened the PPF account in 1999-2000, you will be eligible for partial withdrawal from 2005-06. The withdrawal amount will be the lower of
1. 50% of your balance at the end of the immediately preceding year.
2. 50% of your balance at the end of the 4th immediately preceding year.
In our example, if you are applying for partial withdrawal in 2005-06, you will get the lower of
1. 50% of your balance as on 31st March. 2005
2. 50% of your balance as on 31st March. 2002.
Partial withdrawal after the first 15 years
After 15 years, if you are not interested in closing the account, you can extend the term of the PPF in blocks of 5 years with or without fresh contribution. Your accumulation will get the interest every year. If you are extending without fresh contribution, you can withdraw any amount from the accumulation without any limit as per your requirement. But only 1 withdrawal is permitted in a year.
If you are extending the PPF with fresh contribution, then you are eligible for partial withdrawal of 60% of your accumulation as on the date of extension during the next 5 year period. But the yearly withdrawal is limited to one.
PPF – The Tax advantage
You will get tax benefit under Section 80C while you invest and your maturity amount along with the entire interest is tax free in PPF. So, PPF is one of the most popular tax saving tool and a good retirement savings.
Melvin Joseph
SEBI registered Investment Adviser
SEBI registration number -INA 000000342
Finvin Financial Planners
10. Ground Floor, Olive Excel CHS Ltd
Plot No- 16, Sector 42, Nerul, Navi Mumbai – 400 706
Mobile: 91 9820843739
Website : http://www.finvin.in
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