EPF and PPF
Returns: 8.5% (EPF) and 8% (PPF) per annum
Maximum deduction: Rs 1 Iakh for EPF; Rs 70,000 for PPF
Income : Tax-tree
It’s compulsory and it’s safe. However, in March, the Employee Provident Fund’s (EPF) chief importance is that it automatically reduces the amount you must thvest to exhaust the Rs 1 lakh limit. Jokes apart, the EPF has several advantages for taxpayers. To begin with, it offers a steady return of 8.5%. Secondly, you cannot withdraw the money until you retire or change your job. This means you are exploiting the power of compounding to the fullest over your career span.
The best part is that the interest and the withdrawals are tax-free, a benefit available only in a couple of other products.
All these features make the EPF ideal for investing a retirement corpus. However, if you really need the money, the authorities have the discretion of allowing one withdrawal during your career even if you haven’t changed your job or have not retired. For this, must submit proof of expense for which the withdrawn amount will be used. Typically, a trans-Europe does not qualify as adequate reason for dipping into EPF. If these features seem attractive, you can increase the contribution to the EPF from the mandatory 12% to 25°/s of your basic salary
The returns from the Public Provident Fund (PPF)
slightly lower at 8°/s per annum, but the interest and withdrawals are tax-free. The advantage over the EPF greater flexibility of withdrawals. The maturity period of the PPF is 15 years. However, you can dip into the fund from the seventh year onwards. The maximum limit of withdrawal is 500/s of the account’s balance as in previous year or in the previous three years, whichever is lower. The cut-off date for calculating the balance is March 31, the last day of the financial year.
In case you want the money before the seventh year, can take a loan from the account—up to 250/u of the balance in your account—in the third year. The loan must be repaid in a maximum of 36 EMIs. The interest the loan works out to 12o/s. As the interest on the money is not redirected to the PPF, it may be good idea avoid taking a loan.
Related posts:
