Me. Desai is 53 years old. He has total yearly income of Rs.10,80,000.
His investment are as follows:
1. Life insurance: Rs. 75000
2. Provident fund: Rs. 30000
3.PPF: Rs. 10000 4. NSC: Rs. 15000
From the above details find the total
deductions, his taxable income and total tax.
Answers
Answer:
The Public Provident Fund (PPF) is one of the most popular investment options. Not only does it offer tax-savings under section 80C of the Income Tax Act, but the interest earned on it and maturity amount are also exempt from tax.
The interest rate applicable on PPF investments is reviewed and announced by the government every quarter. For the quarter ending March 31, 2020, the interest rate offered is 7.9 per cent per annum (compounded yearly).
According to PPF rules, the interest is calculated on a monthly basis but it is credited into the account at the end of financial year on March 31. Interest becomes payable for that month if the deposit is made before the fifth of that month.
One can invest a minimum Rs 500 and maximum of Rs 1.5 lakh in a financial year. Here's how interest is calculated in case of lump-sum and monthly contributions.
Monthly contributions
Suppose you are investing Rs 12,500 per month. Let us assume that the interest rate for PPF is 7.6 per cent and remains constant througout the financial year. Here's how your PPF interest will be calculated:
Date of Deposit Balance on 5th of Month (Rs.) Balance on End of month (Rs.) Minimum balance (Rs.) Interest credited (Rs.) If deposit is before 5th, Interest would be (Rs.)
02-Apr-17 12,500 12,500 12,500 79.17 79.17
06-May-17 12,500 25,000 12,500 79.17 158.33
07-Jun-17 25,000 37,500 25,000 158.33 237.50
03-Jul-17 50,000 50,000 50,000 316.67 316.67
03-Aug-17 62,500 62,500 62,500 395.83 395.83
04-Sep-17 75,000 75,000 75,000 475.00 475.00
05-Oct-17 87,500 87,500 87,500 554.17 554.17
07-Nov-17 87,500 1,00,000 87,500 554.17 633.33
07-Dec-17 1,00,000 1,12,500 1,00,000 633.33 712.50
04-Jan-18 1,25,000 1,25,000 1,25,000 791.67 791.67
04-Feb-18 1,37,500 1,37,500 1,37,500 870.83 870.83
04-Mar-18 1,50,000 1,50,000 1,50,000 950.00 950.00
5858.33 6175.00
The total interest credited into your account is Rs 5,858.33 for that financial year. Had you been depositing your money into the PPF account on or before 5th of every month, then you would have earned Rs 316.67 more in the financial year.
Lump-sum contribution
On the other hand, interest is calculated as follows in case you make a one-time lumpsum deposit during the fiscal:
Date of Deposit Contribution Balance on 5th of Month (Rs.) Balance on End of month (Rs.) Minimum balance (Rs.) Interest credited (Rs.)
02-Apr-17 1,50,000 1,50,000 1,50,000 1,50,000 950.00
06-May-17 - 1,50,000 1,50,000 1,50,000 950.00
07-Jun-17 - 1,50,000 1,50,000 1,50,000 950.00
03-Jul-17 - 1,50,000 1,50,000 1,50,000 950.00
03-Aug-17 - 1,50,000 1,50,000 1,50,000 950.00
04-Sep-17 - 1,50,000 1,50,000 1,50,000 950.00
05-Oct-17 - 1,50,000 1,50,000 1,50,000 950.00
07-Nov-17 - 1,50,000 1,50,000 1,50,000 950.00
07-Dec-17 - 1,50,000 1,50,000 1,50,000 950.00
04-Jan-18 - 1,50,000 1,50,000 1,50,000 950.00
04-Feb-18 - 1,50,000 1,50,000 1,50,000 950.00
04-Mar-18 - 1,50,000 1,50,000 1,50,000 950.00
11400.00
If the date of deposit in case of lump-sum contribution had been after 5th of April, in that case, you would have not earned the interest for the month of April. The interest earned in that case would have been Rs 10,450.
Watch outs
PPF scheme rules 2019 have removed the restrictions on the maximum number of contributions that can be made in a single fiscal year. However, the maximum contribution in a fiscal year cannot exceed Rs 1.5 lakh.
Also Read: Here's how your PPF account may become irregular
What is the PPF interest rate for FY 2019-20?
The PPF interest rate is reviewed and announced by the government every quarter. The interest rates for FY 2019-20 are as follows: April-June, 2019: 8 percent; July-September, 2019: 7.9 percent; October-December, 2019: 7.9 percent; and January-March, 2020: 7.9 percent.
How can I maximise the benefit of investing in PPF?
To maximise the benefit of investing in PPF, one should ideally make contributions before the 5th of every month in case of monthly contributions. For lump sum contributions, the amount must
Answer:
The total deductions and taxable income is 950000