How to maximize interest from your Public Provident Fund PPF account?
Being one of the best Tax Saving scheme under section 80C, every Indian taxpayer is very well aware about the benefits of Pubic Provident Fund. PPF not only minimize your tax but also secure your future.
PPF falls under EEE status of tax regime i.e. no tax liability on the contribution, on the return and on maturity value (Refer: Decoding EEE, EET, ETE Regime of Taxation), this makes PPF more lucrative but have you ever wondered that you can maximize interest earning from your PPF account with a little effort.
First let’s see how interest on PPF account is calculated.
Government has declared 8.7% p.a. interest rate for this fiscal year (2013-14) (Read: Highlights of Public Provident Fund)
PPF interest is compounded annually and is credited at the end of the year. But the point to note is that the interest is calculated at the end of every month on lowest balances in account between 5th and last day of the month. So there will be no interest on the amount you deposit after 5th of the month means if you don’t deposit on/before the 5th of a month, you don’t earn interest for that month.
The best way to maximize the interest on your PPF account is to deposit the entire desired amount at once and on or before 5th April. For example: if you wish to contribute Rs.60,000 in PPF account for 2013-14 then it would be wise to deposit it in one go and on or before 5th April, 2013, so that you can earn interest on the amount for the whole year.
Let’s see how this little effort makes you earn few extra bucks each year.
Suppose you want to contribute Rs.10,000 every month in 10 installments (maximum limit). A quick calculation suggests that if you deposit before 5th of every month, you can earn extra monthly interest of close to Rs. 75 and for 10 months it would help you to earn Rs. 750 more, at the current interest rate of 8.7 per cent. This could be more one-sixth of the interest you earn for the whole year.