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Tag: Fixed Deposits

How To Open A Public Provident Fund Account

Public Provident Fund is one of the most efficient schemes introduced by the government of India for all citizens of the country. The Public Provident Fund Account is liable for excellent tax benefits as the interest earned on PPF deposits are free from taxes. Then the contributors to PPF Scheme can claim tax deductions and get good returns, making it the most beneficial investment especially from the post-retirement point of view. Given below are all details regarding opening a PPF account.

PPF account

Public Provident Fund Account Requirements

Various regulations guide an investor who wants to open a PPF Account. There are certain eligibility criterions laid down along with documents to be provided to commence the account. To maintain the account there are various requirements to be fulfilled both financially and legally. Further details are specified next.

Eligibility Criteria For PPF Account

Given below are the eligibility rules that stand for individuals interested to open a PPF Account:

  • Only an Indian citizen is allowed to open a PPF account.
  • The starting age for opening a proper PPF account is 18 years. There is no upper limit in age.
  • If a PPF account is to be opened for a Minor (citizen below 18 years) then a deposit limit of 1.5lakhs is set per annum. Also, a minor’s account can be opened only the parents or legal guardian.
  • The account can only be opened by an Indian citizen residing in India. No NRI’s are allowed to open a PPF account. But, if an Indian resident becomes an NRI post opening of the PPF account, they are allowed to continue with the account until the date of maturity.
  • One person is eligible to open only one PPF Account.
  • Post-May 2005, Hindu Undivided Families have been disallowed from opening PPF accounts. If any citizen belonging to HUF is an account holder before 2005, they are allowed to maintain the account till the date of maturity.

Documents Required To Open A PPF Account

Following are the list of documents needed to open a PPF account. All the most updated copies of the documents are required.

  • Updated Passport, Aadhaar UID Card, PAN Card, Rental Documents/Residential Proof, Letter of the Employer, Driving License, Voter ID Card, Statement Records of Bank Accounts, Cheque Signed By the prospective account holder(Signature Proof). Also, keep copies of all these documents.
  • In addition to these documents, you will need recent photographs.
  • A fully filled and approved form for account opening.
  • Also, a Nomination Form has to be filled in case the account holder is naming nominees.
  • Age proof ID like Birth Certificates in the case of Minors.

Note: The bank may ask for other documents on their sole discretion.

How To Open a PPF account?

A PPF account can be opened at either bank, post offices or online. It is an initial low-cost investment account. It can be opened in the denominations of INR 100, with the total annual deposit of minimum INR 500.

How To Open a PPF account: At Banks or Post Office

The government authorised banks and post offices can be contacted for opening a PPF account. A physical copy of the Account Opening Form can be obtained from the bank or post office. This form is to be filled properly and submitted along with the copies of the required documents as specified by the bank or post office. Then, after approval, an initial deposit is to be made to commence the account.

PPF Accounts can be opened in Banks that have been authorised by the government since this scheme is totally monitored by the Government. Also, sole discretion, the government can withdraw the authority from any bank.

How To Open a PPF account Online

A PPF account can be opened online via the website of any government authorised bank or an agent bank that provides services for the authorized banks. The Account Opening form is to be filled online and submitted through the online portal of the bank. A variety of benefits is provided by some authorised banks like connecting the PPF account with the savings account, generating online statements of the financial assets. All fund transfers can be done online. Thus, with the introduction of the online option, more investors are considering it as compared to the traditional methods of physically opening it at banks or post offices.

Tax Saving Options: Where Should You Invest Your Money

Investment for tax saving is something that confuses every individual. A plethora of choices but an inadequacy of information. So here are the list of all investments and their tax benefits that will definitely help you decide further.

tax saving options

ELSS: Equity Linked Savings Scheme

The financial year 2017-2018, brings a new India under demonetisation and various schemes changing the nature of Tax Saving Act. Equity Linked Savings Scheme is a Mutual Fund which is diverse in nature. It is viable for Tax Exemption under Section 80C. It has a lock period of 3 years meaning that no withdrawal can be done from the ELSS account for 3 years.

Under this scheme, all investors will be having a two-way benefit: high returns on the investment and deduction of taxes.  The biggest advantage here is that dividends that are gained under ELSS schemes are exempt from taxes thus the profit returned is high. Also, ELSS has a short lock period enabling the investor to access the amount invested and the returns easily. All in all, ELSS is the best place to invest your money.

ELSS Rating: 10 Star

Read: Mistakes to avoid while investing your money in ELSS

NPS: National Pension Scheme

The National Pension Scheme has been revised and a New Pension Scheme has been introduced for the benefit of private and semi-government employees. Under this scheme, apart from all government employees, the private employees will also receive an annuitized pension amount on investment in NPS. A huge benefit is that an additional deduction of INR 50,000 will be made in taxes for a citizen investing in NPS.

Thus, the tax deduction on contribution to NPS will be 2lakhs rather than the stipulated 1.5lakhs. When compared to ELSS, the lock period is higher and even after retirement, only 40% of the investment can be withdrawn. Also, the returns may not be as high as ELSS dividends. But as far as tax saving is concerned NPS is an excellent scheme.

NPS Rating: 9 star

NPS: Should you invest your money in NPS

ULIP: Unit Linked Insurance Plan

The Unit Linked Insurance Plan, commonly known as ULIP is like an integrated insurance policy that gives the benefits of both an insurance policy and an investment scheme. It is a flexible scheme that enables the investor to switch between diverse options, invest in other linked schemes or surrendering of the policy. ULIP is viable for tax benefits under the section 80C.

Along with that, the returns on the investments are profitable. The only disadvantage is that withdrawal is not possible from a ULIP account till the sum matures. But apart from that, it is a risk-free scheme giving a three-way benefit: tax savings, returns on investment and insurance cover.

ULIP Rating: 8 Star

PPF: Public Provident Fund

The Public Provident Fund is an integrated monetary savings and tax savings account. This scheme aims at providing a flexible saving by allowing investments and good returns along with tax benefits. The PPF account is an attractive investment scheme as the interests on investments are completely exempt from taxes.

Related article:

How To Open A Public Provident Fund Account

The only drawback is that PPF is monitored by the government hence the interest rates may not be as high as private Mutual Funds. Otherwise, it is an excellent option for someone who is building up a long terms savings account for the period after retirement. PPF also allows benefits in taxes for nominees of the primary account holder.

PPF Rating: 8 Star

VPF: Voluntary Provident Fund

The Voluntary Provident Fund is an extended version of the PPF wherein an investor is allowed to add a stipulated value to the provident fund periodically. It is viable for tax deductions under Section 80C and an amount up to 1lakh can be saved under it. An additional benefit of VPF is that it helps an investor increase the financial assets in the provident fund from time to time. The interests gained on VPF investment is not taxable till the interest rates reach 9.5%. So the disadvantage occurs when the interest rate becomes 9.5%. Otherwise, it is an excellent tax saving and investment option.

VPF Rating: 7 Star

Sukanya Samriddhi Yojana

Sukanya Samriddhi Yojana is a government scheme introduced by Narendra Modi to empower a girl child and ensure proper education for her. The parents of the girl child investing in this scheme will get tax benefits as per Section 80C. Plus the returns on investment made to this account will be used for funding education expenses for the girl child. The disadvantage of this scheme is that it is gender specific so a large number of people cannot avail it. Also, the returns are sometimes insufficient in fulfilling all requirements. But other than that it is an excellent scheme for both tax saving and providing financial security to the girl child.

Sukanya Samriddi Yojana Rating: 6.5 Star

Senior Citizen Savings Scheme

The Senior Citizens Savings scheme is to support all senior citizens by increasing the return rates on their investments. It is an attractive tax saving scheme but the returns are taxable at source if the interest amount exceeds INR 10,000 per annum. Otherwise, it is an excellent scheme with high return rates specifically designed for senior citizens.

Senior Citizen Savings Scheme Rating: 6 Star

NSCS: National Savings Certificates

The National Savings Certificates, most commonly known as NSCS are a risk-free investment option for all working citizens. The investment in NSCS can be made for 5 years or up to a decade and it generates a fixed income like fixed deposits. An annuitized fixed income is returned on this investment at a rate of interest decided by the government of India. This scheme is viable for tax deductions under Section 80C only if the interest gained from NSCS are shown as income. An annual investment up to INR 1 lakh is to be made for tax savings. So apart from the fact that NSCS ensures tax savings only after a few hassles, it is a good investment option with high returns.

NCSC Rating: 5 Star

Bank FDS: Fixed Deposits

Bank Fixed Deposits are a long term investment schemes with fixed returns on maturity. All schemes under fixed deposits do not qualify for tax deductions. Thus to ensure tax saving through Fixed Deposits, an account known as Tax Saving Fixed Deposit needs to be commenced. These fixed deposited are viable to tax deductions up to 1.5lakhs like other tax saving schemes. Though in the long run, the returns generated will not be as high as ELSS. Also, the withdrawal policy is not flexible but it ensures tax savings and a good lump sum after maturity.

Fixed Deposit Rating: 5 star

Related Post:

5 Reasons You Should Invest In A Fixed Deposit Today

Pension Plans

Pension Plans enable an investor to contribute part of their savings in a pension scheme. This amount matures like recurring deposits and thus generates huge monetary accumulations. Thus good income can be gained from pension plans after retirement. The only disadvantage is that no returns are generated from pension funds till the investor reaches an age of 60. Also, after maturity 2/3rd of the returns are treated as income and are taxable at marginal rates. But initially, this is viable to tax deductions up to 1lakh under Section 80C. Thus pension funds help in tax savings for 1/3rd of the lump sum and provide an excellent accumulation, financially.

Pension Plan Rating: 4 Star

Insurance Policies

The tax deductions are separate for all insurance policies. In the case of life insurance, an individual is liable for tax deductions up to 1.5lakhs. After the death of the insured individual, all proceeds are tax-free. In the case of health insurance, the tax deductions are INR 20,000 for senior citizens and 15,000 otherwise.In case the insured individual is facing a life threatening health condition, all proceeds are tax-free.

Also Read: This is why you should invest in LIC

Thus from the tax saving point of view insurance policies do not have much to offer. But in the long run, insurance is an important necessity.

Insurance Plan Rating: 3 Star

 

Is NPS A Good Investment Plan?

The National Pension Scheme primarily aims at benefiting the employees of private and semi-government organisations. The ones in government sectors were liable to a pension after the retiring age. But the same did not stand for private and semi-government employees. Under the administration of PFRDA (Pension Fund Regulatory And Development Authority), the New Pension Scheme under National Pension Scheme was introduced. This provides annuitized returns to private and semi-government employees on the basis of their application for an NPS account.

Investment in NPS

Benefits of NPS (National Pension Scheme)

NPS is an investment scheme that should be given value. For an employee of a private firm, NPS has multiple benefits:

  • Low Investment Cost: The minimum amount to maintain a Tier-1 account is INR 6000 which makes a minimum INR 500 monthly. Thus the initial principal amount is very less.
  • Tax Benefit Under Section 80C: If an individual invests in a Tier-1 account, he is liable to tax deductions under section 80C of the Tax Framework. Under the new budget, an additional tax exemption of INR 50,000 will be provided for investing in NPS. Apart from that, the usual benefit states that 10% of the salary invested in NPS will stand for the deductions up to 1.5lakhs. Thus a total deduction of taxes is 2lakhs.
  • Flexibility: Opening a Tier-1 account was risky if a case of emergency occurred. This is because the withdrawal of the amount before maturity was taxable. The new flexible NPS states that after retirement 40% of the funds in NPS can be withdrawn without taxation. The remaining 60% will become annuitized for returns.
  • Diversity: NPS provides many diverse investment schemes in the form of EGC investments. E is Equity Investment, G is Government Bonds and C is Constant or Fixed Return Investments. An individual when investing can diversify the principal funds among these three options as per their needs.

Drawbacks of National Pension Scheme

  • Lower Returns Than Other Equities: The Equity Scheme under NPS is comparatively less profitable than the rest of the market. Equity Investment is an investment in stocks that generates returns on the basis of dividends. Thus the return rate is much higher in the market.
  • Withdrawal Is Restricted: The amount invested amount is taxable on withdrawal. Even after the retiring 40% funds withdrawn is not taxable. While it is not a very big disadvantage considering normal situations, but in a case of a risky scenario, this can become very disadvantageous.
  • Low Return Rates On Annuitized Amounts: For being liable to a monthly pension after retirement, a minimum of 40% of the maturity amount needs to be contributed to annuity investments. But the return rates of these investments are very low as compared to other investment schemes.

Is NPS A Good Investment Plan?

In the light of benefits provided by Mutual Funds and Employee Provident Funds (EPF), NPS is not very attractive given its low return rates on annuity investments and the withdrawal policy. To secure their retirement with annuitized funds from the government, then investments should be made in the diverse schemes, EGC. Maximal profit returns from investments can be gained by contributing to a variety of schemes together like NPS, Mutual Funds and EPF. This will help reap benefits from all and excellent returns both in terms of tax deductions and maturity amount.