Invest In FDRs And PPF To Save Taxes

Investment is based on financial portfolio and needs of the individual.  One should keep in mind the following factors before making investment in Public Provident Fund (PPF) and Fixed Deposit (FD).

PPF is a statutory scheme of the Central Government of India with a lock-in period of 15 years. PPF account is opened with a minimum deposit of Rs. 500 in a financial year upto the limit of Rs. 70,000. Such deposit in the account earns interest @8% compounded annually. It serves as a retirement planning tool. PPF does not attract clubbing provisions in case an investment is made for the purpose of saving money in the name of a minor child. The unique feature of PPF is that in case of insolvency it will not be attached to the assets of the insolvent.

Tax implication- As far as the tax matters is concerned, investment in PPF provides deduction u/s 80C equivalent to the amount deposited in the PPF upto the maximum of Rs. 70,000 and the interest on such deposits is also exempt from tax u/s 10(11). Moreover, the accumulated sum received at the time of maturity is also fully tax free.

Fixed Deposit serves as one of the tools of investment planning. Fixed deposits have been particularly popular among a large section of investors in India as a safe investment option for a long period. FDs are very low risk investments. It provides the facility of easy cash withdrawal. FDs are expected to pay a much higher rate of interest. The rate of interest varies depending upon the time period and amount deposited.

Tax implication- Investments in fixed deposits with a scheduled bank for a fixed period of not less than 5 years are eligible for deduction under 80C of the act upto Rs. 100,000. But the interest earned on fixed deposit is taxable under the head “other sources”.

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