Risk free return on your investment (Part II – Tax Free)

By | April 5, 2010

Public Provident Fund (PPF)

PPF is a long-term, government-backed small savings scheme of the Central government started with the objective of providing old age income security to the workers in the unorganised sector and self-employed individuals.The Public Provident Fund Scheme is a statutory scheme of the Central Government of India. The PPF scheme is operated through Post Office and Nationalized banks. PPF account can be opened either in Post Office or in a Bank. Account is transferable from one Post office to another and from Post office to Bank and from Bank to Post office.

This is best scheme for long term investment with tax free returns.

How it works

This Scheme is fixed for a period of 15 years with a rate of interest of 8% compounded annually. The minimum deposit is 500/- and maximum is Rs. 70,000/- in one financial year. To continue the account its mandatory to deposit a minimum amount of Rs. 500/- each year. The account holder has an option to extend the PPF account for any period in a block of 5 years on each time.

Further the deposit can be in lump sum or in convenient installments, not more than 12 Installments in a year or two installments in a month subject to total deposit of Rs.70,000/-.

Also deposits in PPF qualify for rebate under section 80-C of Income Tax Act and the interest earned is also tax free.

Example  – If an individual invest Rs 10,000/- every year in PPF account for a period of 15 yrs, the maturity amount will be Rs 293,243, hence the amount invested in 15 years (Rs 150,000) is approximately doubled at the end of tenure.

Read on our next article for some more investment options.

Read Part 1

2 thoughts on “Risk free return on your investment (Part II – Tax Free)

  1. CA Anjali Dugar (Author)

    Hi Ankit,

    TDS is deducted by Bank on the interest earned at the TDS rates subscribed in the Income Tax Act(10% as of now).When the individual file the IT return the interest income is added to the other income and total tax on income is calculated (as per the tax slabs) then the TDS already deducted is reduced from the total tax.
    Hence the interest is taxable as per the individual tax slab rates.

  2. ankit

    wat is the tax deducted on interest income on fd for individual account? are we eliglible to only the tds deducted from banks on the interest earned on fixed deposit even if the interest earned falls in the higher slab of tax rate of more than 10%…

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