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SHANBHAG'S WONDERLAND One of the least taxing ways of earning a tax-rebate. By A.N. Shanbhag
After all, the PPF, as it is called, is the best of the tax-saving schemes that offer rebates under Section 88 of the Income Tax Act, 1961. Since the end of this financial year is 10 days away, I thought this would be an opportune moment to reiterate the benefits of the PPF to you. Every salaried employee enjoys the benefits of the Company Provident Fund, which every employer must statutorily maintain. To extend some of the same benefits to non-salaried people, the Government of India then framed the PPF under the provisions of the Public Provident Fund Act, 1969, even while permitting salaried employees too to invest in it. While the branches of the State Bank of India and its subsidiaries, some of the branches of some of the nationalised banks, and all the head post offices in the country were designated as accounts offices, the PPF is just an annuity with a term of 16 years. Not 15, which is the general perception, since you can make your last contribution in the 16th financial year--even on the last day. In which case, the account matures the very next day and, although that contribution will not earn you any interest, you can still claim a tax-rebate on it. concessions. Under Section 10(11) of the Income Tax Act, the interest you earn on your deposits in the PPF--12 per cent per annum--is exempt from income-tax--without limit. Under Section 88, PPF contributions, aggregated with your subscriptions to some other schemes upto a limit of Rs 60,000, qualify for a tax-rebate of 20 per cent. For authors, musicians, and the self-employed, the rebate, at 25 per cent, is higher. So, in, say, the 20 per cent income-tax-slab, the equivalent rate of taxation, without accounting for the other concessions on your contributions, works out to 15 per cent. SUBSCRIPTIONS. While the minimum contribution to the PPF is Rs 100, and the maximum is Rs 60,000 per annum, most of the other tax-saving schemes--like those of the Life Insurance Corporation and the Unit Trust of India's Unit Linked Insurance Plan--require pre-fixed contributions at regular intervals, which imposes some pressure on the investor. Personally, be it connected to investment or not, I prefer self-imposed discipline to compulsion because of the flexibility that it allows me. LOANS. As a PPF Account-holder, you are eligible for a loan in, or after, the third year, but before the seventh year--when the partial withdrawal facility starts--of upto 25 per cent of the balance to your credit at the end of the second preceding financial year. You can repay it in 36 months, with the rate of interest charged being 1 per cent per month--effectively, 13 per cent per annum. After that, the interest rate on the outstanding sum is 6 per cent per month. While you can obtain a second loan only after the first is repaid, it is wise to avoid it since you would pay the interest out of your non-taxable interest income. POST-MATURITY CONTINUATION. While you can close your PPF Account on the completion of its term, you could continue the 16th-year account for a block of five years, during which you enjoy the option of not subscribing to it too. And you can opt for an extension of 5 years after the 20th year, and 5 more years after the 25th year, and so on. Continuing with fresh subscriptions entitles you to withdraw upto 60 per cent of your balance at the commencement of each extended period in one, or more, instalments, but not more than once a year. But if you merely retain the balance in the account--which will earn interest at the same rate of 12 per cent per annum until it is withdrawn--you can withdraw the entire sum in one, or more, instalments, but subject to the same caveat. While no paperwork is necessary to continue a PPF account without subscription, it is absolutely essential to intimate your bank--through Form H--if you want to continue to subscribe to it. That's because the Central Board of Direct Taxes has stipulated (Ministry of Finance, DEA, No 7/21/88-NS-II of August 10, 1990) that, after 15 years, the tax-benefits under Section 88 will not accrue to you unless the option for continuance is exercised. Fill in that form, if you must, but, if I were you, I would shut down the old account, and open a new one. Post-maturity continuance is, I hold, the only thing that is not providential about the PPF Scheme. |
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You do only an injustice to yourself,
and your family, if you do not use the most effective axe with which to slash your
income-tax: the Public Provident Fund Scheme. 