Latest Expert Exchange Queries
sitemapHome | Registration | Job Portal for CA's | Expert Exchange | Currency Converter | Post Matrimonial Ads | Post Property Ads
 
 
News shortcuts: From the Courts | News Headlines | VAT (Value Added Tax) | Service Tax | Sales Tax | Placements & Empanelment | Various Acts & Rules | Latest Circulars | New Forms | Forex | Auditing | Direct Tax | Customs and Excise | ICAI | Corporate Law | Markets | Students | General | Indirect Tax | Mergers and Acquisitions | Continuing Prof. Edu. | Budget Extravaganza | Transfer Pricing
 
 
 
 
Popular Search: TAX RATES - GOODS TAXABLE @ 4% :: ACCOUNTING STANDARD :: list of goods taxed at 4% :: VAT Audit :: articles on VAT and GST in India :: ICAI offer Get Windows 7,Office 2010 in Rs.799 Taxes :: form 3cd :: VAT RATES :: ARTICLES ON INPUT TAX CREDIT IN VAT :: empanelment :: ACCOUNTING STANDARDS :: due date for vat payment :: cpt :: TDS :: Central Excise rule to resale the machines to a new company
 
 
News Headlines »
 Income Tax Department expands list of deposits, transactions under scrutiny
  Income-tax Act, 1961 read with Rule 114E of Income-tax Rules, 1962
 Master Directions on Access Criteria for Payment Systems
 RBI-Scheduled Bank's Statement of Position in India as on Friday, January 06, 2017 (Revised)
 3 Big Mistakes To Avoid This Tax Season
 The Top 5 Tax Stories Of 2017
 Are multiple service tax rates in the offing?
 All you need to know about claiming tax break on HRA
 How much income tax you should pay on investments in gold?
  Best ways to save tax in 2017
 8 unknown stocks that could yield huge returns

Investing in PPF? Take right steps
July, 10th 2006

If you have ever dealt with issues relating to small savings, you would know that different people handling accounts at various institutions have different answers for the same topic. Hence, investors have to be very clear about the actual rules and regulations, because this can make all the difference.

One such area is the public provident fund (PPF). Till the budget last year, investors were trying to ensure that they would get their money back without any tax problems, because the introduction of the exempt, exempt tax (EET) system was a priority for the government. However, with this no longer under the lens, and the fact that interest rates are on the rise, many investors have been rethinking their strategy for PPF accounts.

The idea for most investors was that when the PPF account matures, they should pull out the sum from the account and invest it elsewhere, to continue to earn good returns and ensure that the tax burden is limited.

The main worry was that the amount in the PPF account had accumulated over the years and had grown quite large. If there was a tax at the time of withdrawal , then not only would a large amount of tax have to be paid to the government, but the entire calculation over the individuals lifetime would be turned upside down. While taxing existing investments was not the aim behind the introduction of the EET system, investors were not convinced of this intention.

This fear has been put on the backburner, but there is one more factor at play. Interest rates are on the rise and it is unlikely that interest earnings on PPF will come down soon. If the situation remains tight for some more time, there may even be a demand for a rate hike in such investments. The situation gets complicated as the possibility of an opportunity loss of earnings will have to be factored in while taking a decision.

A high rate of return is attractive for long-term investors because on completing their term of 15 years, or the extended period of blocks of five years, they will have a large balance in their account . The gains are not on account of the actual earnings, but due to the compounding factor. The compounding effect results in high earnings in absolute terms over the duration of the investment, even when the rate is not too high. Hence, it makes more sense to ensure that the investment continues to earn at a high rate of return. 
 
A couple of points should be considered here. Firstly, if the account is extended for five years, it will be difficult at this stage to say as to what will be the situation after that point of time, especially as far as the taxation aspect is concerned. This could also result in an unfavourable tax status when the next block comes to an end. Secondly, the rate of return is not locked in and hence, any change in the rate will mean that the entire investment will earn at the specified rate from the date of change of rate. Thus, a fall in the rate would impact the earnings negatively.

However, the problem people face is that when they go to their bank to extend the PPF scheme, there is often a resistance in following the process. As per the current rules, there is no cap on the number of times the PPF scheme can be extended, but earlier , this was restricted to three extensions. Due to this, at several places, investors are refused extension , which causes them unnecessary trouble.

In such a case, there is little that investors can do except point out the fact that the rules permit such an extension. Or they could ask the bank officials to show them the rules that state that only a specified number of extensions are permitted. This is necessary in order to ensure that investors can continue their account even after the so-called extension period has ended. As a result, they can benefit from the extension and can obtain the required earnings on their investments.

 
 
Home | About Us | Terms and Conditions | Contact Us
Copyright 2017 CAinINDIA All Right Reserved.
Designed and Developed by Binarysoft Technologies Pvt. Ltd.
Binarysoft Technologies - Company Overview

Transfer Pricing | International Taxation | Business Consulting | Corporate Compliance and Consulting | Assurance and Risk Advisory | Indirect Taxes | Direct Taxes | Transaction Advisory | Regular Compliance and Reporting | Tax Assessments | International Taxation Advisory | Capital Structuring | Withholding tax advisory | Expatriate Tax Reporting | Litigation | Badges | Club Badges | Seals | Military Insignias | Emblems | Family Crest | Software Development India | Software Development Company | SEO Company | Web Application Development | MLM Software | MLM Solutions