Using the new PPF limit of 1.5L
The Public Provident Fund (PPF) is one of the most popular tax-saving schemes. In a further boost to its attractiveness, Finance Minister Arun Jaitley in the Budget increased the ceiling on PPF investment to Rs. 1.5 lakh from Rs. 1 lakh.
Mr Jaitley also increased the maximum amount eligible for deduction through permissible investments under 80C of the Income-Tax Act to Rs. 1.5 lakh, from Rs. 1 lakh. PPF is one of the financial savings that qualifies for Section 80C tax benefits. Not only the money you invest in PPF is exempt from tax under Section 80C, the interest you earn on the PPF investment is also exempt from tax.
How PPF interest is calculated: The interest on PPF account is no longer fixed and is now pegged to the yield on government bonds. The government declares the interest rate payable on PPF every year. For 2014-15, the government has announced interest rate of 8.70 per cent (compounded yearly).
The interest on balance in your PPF account is compounded annually and is credited at the end of the year. But the point to remember is that the interest calculation is done every month: the interest is calculated on lowest balances in account between 5th and the last day of the month.
So if you deposit after 5th of a month, you don't earn interest for that month.
The ideal way to maximise the interest on your PPF account would be to invest Rs. 1.5 lakh (the maximum investible amount in a year) at one go at the beginning of the financial year. PPF accounts follow an April-to-March year so to earn the maximum interest, you should deposit the amount on/before 5th of April every year. A one-time deposit will earn interest for the whole year.
Deposits in PPF account can be made in lump-sum or in maximum 12 installments.
On the other hand, if you want to deposit some amount every month, remember to deposit on/before 5th of that month. This will help you to earn interest for that month.
Suppose, you deposit Rs. 15,000 every month in 10 instalments. A back-of-the-envelope calculation suggests that if you deposit before 5th of every month, you can earn extra monthly interest of close to Rs. 105 and for 10 months it would help you to earn Rs. 1,050 more, at the current interest rate of 8.7 per cent. For a long-term investment product like PPF, if you follow the habit of depositing before 5th of every month, it could mean bigger retirement kitty for you. more
Mr Jaitley also increased the maximum amount eligible for deduction through permissible investments under 80C of the Income-Tax Act to Rs. 1.5 lakh, from Rs. 1 lakh. PPF is one of the financial savings that qualifies for Section 80C tax benefits. Not only the money you invest in PPF is exempt from tax under Section 80C, the interest you earn on the PPF investment is also exempt from tax.
How PPF interest is calculated: The interest on PPF account is no longer fixed and is now pegged to the yield on government bonds. The government declares the interest rate payable on PPF every year. For 2014-15, the government has announced interest rate of 8.70 per cent (compounded yearly).
The interest on balance in your PPF account is compounded annually and is credited at the end of the year. But the point to remember is that the interest calculation is done every month: the interest is calculated on lowest balances in account between 5th and the last day of the month.
So if you deposit after 5th of a month, you don't earn interest for that month.
The ideal way to maximise the interest on your PPF account would be to invest Rs. 1.5 lakh (the maximum investible amount in a year) at one go at the beginning of the financial year. PPF accounts follow an April-to-March year so to earn the maximum interest, you should deposit the amount on/before 5th of April every year. A one-time deposit will earn interest for the whole year.
Deposits in PPF account can be made in lump-sum or in maximum 12 installments.
On the other hand, if you want to deposit some amount every month, remember to deposit on/before 5th of that month. This will help you to earn interest for that month.
Suppose, you deposit Rs. 15,000 every month in 10 instalments. A back-of-the-envelope calculation suggests that if you deposit before 5th of every month, you can earn extra monthly interest of close to Rs. 105 and for 10 months it would help you to earn Rs. 1,050 more, at the current interest rate of 8.7 per cent. For a long-term investment product like PPF, if you follow the habit of depositing before 5th of every month, it could mean bigger retirement kitty for you. more
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Any benefit using 80C instruments beyond the limit? Doesn't seem wise. Earning more but not utilizing it. more
Aug 27
Dear Satyarth : There are hundreds of person in India having salary more than Rs 1 lakh per month and can deposit PPF as per their earning capacity. So no offence. more
Aug 24
Salaried individual actually investing complete 100000 as of now in PPF? If yes, Why? What is the benefit? The 80C limit must always be higher than the PPF limit. more
Aug 22
Gazette notification raising PPF limit to Rs. 150000/ has been issued on 13th August, 2014. more
Aug 22
A salaried person trying to abuse PPF by depositing 1 Lakh in single month of April? Not just may deny benefit, must be booked for black money. more
Aug 22
