Public Provident Fund - Tax Planning
PrintListen to this Article
Dear Friends,
Let me introduce myself first, my name is Naveen K R.I am a Qualified Chartered Accountant (CA) and Company Secretary (CS). Thought of writing a small article on “Tax Planning” which would help all the members to plan there Tax in legal and legitimate manner
Tax Planning means using the benefits as given in the statute/law/act like Deductions, Exemptions and cutting down the out flow of money by way of tax in legal, ethical and legitimate manner. In short, it is making use of beneficial piece of law to save the money by means of tax, by utilizing such provisions. It means bending law but without breaking it, which is universally accepted and permitted.
The common mistakes/errors committed in case of Tax Planning are as follows:-
- Planning at the year end (Due to lack of time, proper decision are not taken)
- Lack of understanding of the Provisions stated in the Act/Statute
- Poor knowledge of the channel (Product or Instrument) chosen for your investment
- Relying on the advices given by the friends, neighbors, colleagues and others without analyzing whether that will suit to your needs and risk taking abilities
Most of us are successful in saving of hard earned money but when it comes to investments every one expects it to be invested in the best possible manner. So we shall discuss in this article where investments are made, which are best suitable for and each and every one by understanding the risk and returns involved as well as to “Save Tax”
There are various modes of investments like Public Provident Fund (PPF), Tax Saver Fixed Deposit, Tax Saver Mutual Funds, Investing in Life, Term & Medical Insurance policy so on and so forth. Lets us deal all the option in a systematic manner
In this article, will explain one of the popular most common and effective mode of investment in Public Provident Fund (PPF)
Salient features of PPF:-
- PPF is administered by Government of India
- PPF account can be to compared to Bank account, any resident individual can open an PPF account either in Post Office or in Recognized Nationalized Banks like State Bank of India
- PPF account can be opened in own name or on behalf of his children (if they are minors) or on behalf of your parents
- The minimum amount of investment is Rs.500
- The maximum amount of investment is restricted to Rs.1,00,000 per financial year
- The rate of interested is 8.8% per annum
- Interested would be calculated yearly basis or Annual Compounding
- The amount of deposit made in the PPF account during a Financial Year would be deducted from you Total Income earned for computation of Tax. That means on the savings made in PPF you need not pay any tax. Here Financial Year means beginning of April to Ending of March i.e. 1st April to 31st March. This benefit derived under Section 80C of Indian Income Tax Act,1961
- The amount deposited in PPF account would be locked in for a minimum period of 15 Years
- The Interest on PPF amount is also not taxable
In short both principal amount of investment in PPF as well as interest earned on are not taxable
Planning with PPF
· Liquidity Crisis: We have already noted that PPF comes with a lock in period of 15 years. Having said this, Banks offer loans against PPF investments from 3rdyear onwards (25% of the balance in the PPF A/c can be availed as loan). Partial withdrawal from PPF A/c is also permitted after the expiry of 5 years.
· Risk in Investment: Literally the PPF investment suffers a 0% Risk, as it is administered by Government of India. This type of investment are also know as “Gilt” where the risk involved is almost to zero or nil
· Suitability: It is best suitable for those who would like to invest on a long term basis. It would be one of the best means retirement planning
· Maximize Interest Earnings: Interest is calculated on the lowest balance between 5th and last day of the month. So to enjoy more interest, try depositing the amount in PPF account between 1st to 5th of the month
Disadvantages :
· It is not suitable for short term as lock in period involved is 15 years
· Rate of interest which is currently at 8.8 per annum, would be keep varying or changing with respect each financial year
· It is not suitable for investor who are aggressive and accepts risks
Before concluding this article, would like to place quote, “Higher the Risk Higher the Return” and vice versa. Thus PPF falls in the risk free investment mode where you get safe returns in addition to tax benefits.
Your views, comments and suggestion are appreciated.
Category : Income Tax | Comments : 0 | Hits : 926
Income Tax Alert - Here Are 5 High-Value Transactions That May Come Under Scrutiny. Large Cash Deposits: Any cash deposit exceeding Rs 10 lakh in a financial year across savings accounts draws the attention of the income tax department. Even if deposits are spread across multiple accounts, the cumulative amount beyond the threshold triggers scrutiny. Fixed Deposits: Surpassing the Rs 10-lakh limit in fixed deposits within a financial year prompts inquiries regarding the source of f...
Delhi Court Sentences Woman to 6 months Jail for not filing the return of income (ITR) discussed. Accordingly, the accused is held guilty of not filing the return of income for the assessment year 2014-15 under Section 276CC of The Act. Accordingly, the accused is convicted for an offence punishable under Section 276CC of the Act," the court said in the judgement. "The convict is awarded a sentence of simple imprisonment for six months with a fine of Rs 5,000 and in default to unde...
Corporates, Non-corporates or government department all are procuring major part of services or goods from the MSMEs. There are provision under the Micro, Small, and Medium Enterprises Development (MSMED) Act, to ensure that businesses make payments to MSMEs within a specified time frame, and failure to which can impact the deduction claims for such payments. To facilitate timely payments to micro, small, and medium enterprises (MSMEs) and address the challenges faced by these businesses in rec...
In the Income tax act, the words “Turnover”, “Gross receipts” and Sales are used at many places. In the common business parlance, the terms sales and turnover are used interchangeably. However, as per Income Tax law, guidelines are available on the question of what constitutes turnover. Understanding the concepts of these words is necessary for the purpose of the tax audit. An audit is mandatory for corporate assessees, irrespective of the amount of turnover. In ...
Very Important Income Tax Update regarding Micro and Small Enterprises Section 43B-any amount remains unpaid on year end to creditors, being micro/small entity, beyond 45 days or less, as agreed or 15 days if no agmt, shall be added to taxable Income resulting in huge additional tax liability. Keeping such creditors unpaid is risky. If payment for purchases made from *Micro and Small units* remains outstanding on 31st March, there may be huge tax liability. Therefore...
Comments