January 24, 2011 6:49 pm
Can someone tell me why there is a upper limit of Rs.70,000 per annum in PPF?
ALso randomguy the most important think you missing is you make up 7k once you invest into it.As you save 7k worth amount in tax hence 10% already made out of your investment.
You missing the compounding bus.
And of-course i agree inflation eats up your return.
But if you wish to save for your retirement or child marriage.And ready to continue the same for say 20 years.Nothing beats it.
Also why you missing interest are tax free.Actually if you compare it with ulip and other endownment plan its a wonderfull tool.
70k investment each year upto 20 years would fetch 32 lakhs.Also as i said if you try my method and say you have extra cash in hand you can convert it in sense turn it into white and earn interest.
PPF interest 8% for many many years. Inflation >10% for god knows how long. Over long term(esp for young people) invested heavily in PPF, negative returns in terms of buying power.
The winner here is the Govt and the loser is the common man – In the eyes of people Govt is giving a guaranteed 8% returns but they are taking it (diminishing the actual returns=negative returns) by means of inflation.
Open your eyes and come to terms with the real world. It is tough and no free lunch in this real world.
Alas, very few people understand that!!
Bharat but that would be clubbed and not added seperately.
i like to add that the additional accounts in name of spouse and minor children can be opened and subsciption could be paid by you, for which you could 80c benefit, of course upto overall limit applicable.
Actually i wished to share personal knowledge.
I went for a seminar on tax savings and it was conducted from a person within our community hence he was more free to share private information(as he works as an assessing income tax officer).
He said one wherver possible in family should invest in ppf under all circumstances when he wants to invest in 80c instruments.
1::PPF is nothing but government getting money at cheap interest in sense cheap loan.As it have 15 years lock in and 3 government changes they dont have to worry about repaying.Plus its human tendency to forget long investments hence disbursal is never a concern for government.
2::Most importantly its the ppf money which the government gives on big interest or used to same for personal purpose hence they have made laws for their benefit in sense when one is deep loan trouble.No agency including government psu banks can break the ppf to take the money of loan.Its still your property which they cant confiscate it.
3::ANd the final and most important reason to invest in ppf is as this money goes to government directly and for their own benefit strict orders have been given on personal note not to scrutinize people on basis where they got money to invest in ppf.Hence one can invest extra cash in hand into ppf directly and need not worry whether the govt will ask whats the source of the money.In short we can extend our tax exemption limit by 70k if we invest cash in hand directly into ppf and get deductions(though person should take this risk at your own will) as this necessary catch can be easily found in profit loss statemtn but not in main balance-sheet.
Thanks a lot for tht clarification.
Dont you think 70K as upper limit is way too less in these days. I personally think, they should increase the upper limit to atleast 2 Lakhs and also increase the interest, so that, many more people would consider PPF as one of the attractive instruments for saving their hard earned money.
Some of us may consider it. But still its an additional cost to the govt. to provide the 8% interest and that may be one of the reasons it is not being promoted.
If they increase the limit, it will be better for the govt more than anyone else , who gets a cheap money from public at 8% interest for 15 yrs .. NO ONE !
Nice questions . The actual reason for this is that the investment limit in PPF is 70,000 which is set by Public provident Fund Act , its not restricted by Income tax act .
Note that in the past as and when income tax limits increased, at the same time even PPF act was also amended and the limit in PPF was increased .
Till 2005 , 80C limit was 70,000 and for the same reason even PPF limit was raised to 70,000. But when Limit for 80C was increased from 70,000 to 1 lac, we never saw any action being taken for PPF limit increase and its still 70,000 .
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