PPF Interest Rate 2011 and Public Provident Fund calculator
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In today’s volatile conditions how many of us take the risk of investing in markets? Most of go for safe havens like Fixed Deposits but more often than not interest rate of Fixed deposits is not able to beat inflation. Read more on Interest Rate on Fixed Deposits.
As per a recent government order, ppf account interest rate will be raised from existing 8% to 8.6%. Also the ceiling on investment under Public Provident Fund is going to be raised from current Rs 70,000 to Rs 1,00,000.
Fixed Deposits vs Public Provident Fund
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 PPF vs FD |
PPF interest rate in 2010 was 8%. In addition the interest earned is tax free is as well. So the effective rate of interest rate on Public Provident Fund was 8%. Now let us compare this with interest earned on Fixed Deposits.
Effective rate from fixed deposit can be calculated as : (1-TR)*ROI, where, ROI is Rate of Interest on Fixed Deposit and TR is Applicabe Tax Rate.
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If you fall in the highest tax slab, you are liable to pay 30% tax on your earnings from Fixed Deposits. So even if you get a return of 8% per annum from your deposit, your effect rate of return after tax will be 0.7*8% = 5.6% only.
So as you can see hardly any other fixed income investment option gives such a risk free interest rate.
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PPF Tax benefit
The amount invested in Public Provident Fund is eligible for tax deduction upto a maximum of Rs 70,000 under Section 80 C of Income Tax Act (the limit is going to be raised to Rs 1,00,000 soon). Also the interest income earned is tax free. Hence PPF provides dual tax benefits.
If you have opened an account in the name of your spouse or minor child along with a PPF account of your own, then the amount invested in two accounts is clubbed together.
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In other words, the total amount deposited in your own PPF account and the account of your minor child can’t exceed Rs 70,000 in a Financial Year. But you can still make additional deposits beyond the limit of Rs 70,000 in the account of your spouse or your major children and accordingly you can claim Rs 1 lakh tax deduction u/s 80C of IT Act.
The only disadvantage with Public Provident Fund is that the money gets locked for a period of 15 years. But that can also be turned into an advantage if you open the account early. That is, say you opened the account when you started your career. Now by the time your son or daughter are ready for marriage, your PPF account would have matured thereby providing you very useful and tax free savings.
To determine PPF returns and maturity value after different time periods use following PPF calculator.
PPF interest rate calculator
How is interest on PPF calculated in a financial year? Public Provident Fund interest calculation is a bit complicated. Interest is calculated on monthly basis but compounded on annual basis only. Also no interest is paid for a particular month if the amount is deposited after 5th of the month.
Use the calculator below to know the interest income earned from your PPF account in a financial year.
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