Paying income tax is a necessity, but a very painful one. Fortunately, solutions are available that can help people save money rather than pay it out to the taxman. One of the biggest such tax-saving schemes is the Public Provident Fund (PPF) that is available to everyone, even children. Yes, you will not have to pay any tax on PPF while doing your ITR filing.
Income tax payment
So what makes Income tax such a painful exercise? Among the various reasons are:
One of the biggest reasons is that tax laws and regulations feel so confusing, making the process stressful and daunting. In fact, the anxiety of potential mistakes in filing creates stress too. Not just that, paying taxes can be a significant financial burden. Add to that the burden of time spent gathering documents, filling out forms, or even seeking professional help – the overall inconvenience becomes unbearable. And finally, the money that goes to the taxman impacts personal budgets and affects long-term savings.
PPF and income tax
In this scenario, PPF is a blessing. You do not have to pay any tax on the amount that you save here. Its status on income tax is Exempt-Exempt-Exempt and falls under the Section 80c deductions that are allowed for taxpayers.
And the best part is that through the high PPF interest rate, an investor can actually earn in crores. However, this would require a very disciplined approach that is implemented for decades. It should be remembered that the PPF is a retirement, wealth-accumulating, tool. While the PPF account holder will invest small sums over a long period of time, the magic of compounding of interest rate will provide a magical sum at the time of final withdrawal.
For example, if a PPF account holder were to start his PPF journey at the age of 25 and he starts investing Rs 150000 yearly at one go, and keeps this up for 25 years, he will end up as a crorepati. PPF interest rate is 7.1% and this will ensure he makes a massive sum. The PPF calculator shows that this person will earn Rs 1,03,08,014. Notably, PPF account has to be extended after the 15 year period is over. This can be done in batches of 5 years indefinitely.
In example 2, just assume that this PPF account holder starts his journey even earlier, let us say at 20 and continued investing till he is 55, he will get more than double the amount mentioned above. His Rs 150000 yearly investment, after a 35 year period, will turn into Rs 2,26,97,857. And the best part is, he will not have even reached the retirement age of 58!
In that respect, PPF can be the perfect tax killer for most people.
Note: The sums mentioned here are estimations. The actual amounts will be provided in the PPF passbook.
Yes, PPF interest rate, which is 7.1%, can turn an investor into a crorepati, and yet no income tax has to be paid while filing ITR. Personal Finance Business News – Personal Finance News, Share Market News, BSE/NSE News, Stock Exchange News Today
