PPF: How you can turn your Rs 12,500 monthly investment into Rs 1.16 crore
New Delhi: The Public Provident Fund (PPF) is one of the most favoured long-term investment options in India because those who can not stomach the volatility of equity markets, they look for fixed return earning assets like PPF. Along with fixed interest every year, PPF offers Exempt, Exempt, Exempt (EEE) tax benefits at various stages.
What is EEE tax benefit:
EEE category means that the contribution, interest earned and the maturity proceeds are all exempted from tax. Investment options like EPF and PPF offer EEE tax benefit.
PPF interest rate 2020:
The Public Provident Fund (PPF) fetches an amount of interest on the PPF balance. The PPF interest rate for the quarter of January 2020 to March 2020 is 7.9%.
PPF contribution limit, tax exemption:
One can invest up to Rs 1.50 lakh in PPF every financial year. Under the old tax regime, one can claim tax exemption on up to Rs 1.5 lakh investment in PPF account.
PPF maturity, extension:
PPF account gets matured after 15 years. However, one can extend the maturity by a block of 5 years for multiple times by giving an application to the post office or bank branch in which you have the account. They just need to fill and submit. Form H for an extension. Know that Form 15H has to be submitted within one year of the maturity period.
- Extension without contribution: If you opt for continuation of the account without contribution, then you will continue to get interest for the next five years but no further contribution will be allowed. In this extended period, you will be allowed to make only one partial withdrawal in each financial year. This partial withdrawal can be of any amount. Once the account is continued without deposits, for more than a year, you can not opt to continue the account with deposits for a block of five years.
- Extension with contribution: In this case also you have to inform your bank/post office branch before the expiry of one year in writing by filing up Form H. If you do not fill the form and continue making deposits, then the new deposits will be treated as irregular and no interest will be paid on them. The benefits of Section 80C of the Income Tax Act will not be available on deposits made in the extension period if you do not exercise option for the continuance of the account.
How to save PPF corpus of up to Rs 1.16 crore:
Using any PPF calculator, one can find out that in fifteen years, if one keeps investing Rs Rs 12,500 per month or Rs 1.5 lakh per annum, the maturity amount will become Rs 43,60,517. Since one can’t invest more than Rs 1.5 lakh in a financial year in the PPF account, they will have to stick to Rs 12,500 per month contribution till the maturity period and even after.
By using Form H, one can turn their Rs 12,500 per month investment into Rs 1.16 crore. If the PPF account is extended for further 10 years after maturity, the end corpus amount would be Rs 1,16,60,769. This means that by using the PPF account extension trick twice, an investor can accumulate Rs 1.16 crore in their PPF account.
PPF partial withdrawal, loan facility:
It is worth mentioning that PPF also provides loan and partial withdrawal benefits. PPF account holders can avail a loan between the third and sixth financial year of opening the PPF account. The maximum amount that can be availed as a loan from PPF account is 25% of the total amount accumulated in PPF account by the end of the second fiscal year preceding the year in which the loan was applied for.
After the completion of the sixth financial year or from the beginning of the seventh financial year, the PPF account holder can avail tax-free partial withdrawals. The maximum partial withdrawal amount is capped at 50% of the account balance at the end of the fourth financial year preceding the year in which withdrawal is made or 50% of the account balance at the end of the previous financial year, whichever is lower.