Are you making the most of PPF?

In the financial year 2014-15, the maximum amount that can be invested in PPF has been increased to Rs 1,50,000 from Rs 1,00,000. The maximum amount that can be claimed under section 80C is also increased to Rs 1,50,000.

PPF is a very popular investment under Section 80C of the Income Tax Act - with twin benefits of tax saving along with long term secure investment.

How to open a PPF account?

You will need to find out which of your bank's branch allows PPF accounts. Some of the banks allow you to access your PPF account details online and you can easily transfer money from your savings account to your PPF account. In case you have your PPF account with one of the old nationalized banks, you may be required to maintain a physical pass book, and get it updated by visiting your bank, whenever you make a deposit or 2-3 times in a year.

How much to invest?

The minimum investment required is Rs 500 every year to keep the PPF account active. You can make this deposit at any time during the year. However to maximize your returns, invest Rs 1,50,000 at the start of the financial year. Amounts deposited in April will earn interest for the whole year. Or else you can make deposits from 1st to 5th of a month, since interest is calculated on lowest balance in the account from 5th to and last date of the month. You will not earn any interest for a month if you deposit after 5th of that month.

Tax on Interest earned

Interest is earned at roughly 8.7% on your PPF account. It is entirely tax free and is better than what most FDs earn these days.

Tax on Maturity or Withdrawals

The PPF account matures after 15 years. Receipts on maturity or withdrawals are tax free. Withdrawals are allowed after 5 years to a certain extent .