Thursday, 27 October 2011

EPF,PPF & Tax Saving Fixed Deposits under 80C

Under Section 80C of Income Tax Act you can save tax for an income up to Rs. 100,000 for an investment in certain investment options. As per the section 80C of Income tax act you can invest in Employees Provident Fund, Public Provident Fund, Tax Saving Fixed Deposits, National Saving certificates, Equity Linked Saving Schemes (ELSS or Equity Linked Mutual Funds) etc. Some payments also included in Rs. 100000 Tax exemption under section 80C, such as housing loan repayment (Principal amount), LIC Premium payments, and Tuition fee of your children paid to recognized regular educational institutions etc. But here let us compare the PF, PPF & Tax Saving Fixed deposits.

Employees Provident Fund (EPF)

EPF or Provident Fund is a compulsory deduction from your salary by the employer and deposit the amount with employer’s contribution for the retirement needs or CERTAINS emergencies of the employee. The amount deposited, interest earned and also the amount withdraw after a certain period are exempt from income tax. At present there is 9% interest is available for the EPF investment. 9% Tax free interest means 10.03%, 11.34% & 13.02% taxable interest as per 10%, 20% & 30% tax bracket respectively. If you invest in EPF account you can get a profit of at least 10.03 % income (gross income) P F Deduction Makes You Rich when Retire

Public Provident Fund Account (PPF)

PPF is also a tax free investment which can open in any post office or selected nationalized banks. The amount invests in PPF, the interest earned from PPF and the amount withdrawn from PPF is also tax free. Now there is 8.5 % tax free interest for PPF and you can invest a maximum of Rs. 100000 in PPF account in a year (at present the maximum amount can invest in PPF is Rs. 70,000 and there is a proposal to increase up to Rs. 100,000) and the minimum amount is Rs. 1000. The tax benefit is applicable in PPF also with a slight difference of income of 9.48%, 10.71% & 12.30 % of taxable interest as per the tax brackets of the investor. Public Provident Fund (P.P.F) Explained

Tax Saving Fixed Deposits

Tax Saving fixed deposit is also a tax saving investment option which can invest in nationalized and scheduled banks which earns an interest rate varies from 8.25% to 10% in different banks (0.25 % to .50% more interest for senior citizens). But the interest is taxable. The maximum gross tax return is 10% and the net tax return is 8.97%, 7.94% and 6.91% respectively for 10%, 20% and 30% tax brackets. Top Ten tax saving investment options

For EPF & PPF the net tax and gross tax return is 9.5% & 8.5%. So for 20% & 30% tax brackets the EPF & PPF are better option for Tax saving instruments under section 80C.

But you have to consider the maturity period of PPF, EPF and Tax saving fixed deposits. The maturity period of tax saving fixed deposit is only 5 years, but the maturity period of PPF is 15 years (You can make conditional withdrawal once in a year only after 6 years of the opening of PPF account). In case of EPF account you can withdraw only for certain specified purposes after 6 years of opening EPF account. Otherwise PPF & EPF combination is the better option as tax saving investment under section 80C.


No comments :

Post a Comment