Investment in PPF, VPF, EPF trio gives benefits of deduction under section 80C. Interest income is completely tax free. However, interest rates vary and eligibility for both is also different.
When talking about investment, then pay attention to two things. The first is how much return on investment is called return on investment. Second, how safe it is in terms of investment. Apart from this, let us also see what are the taxation rules. In this article, you will tell who is a better option for investing in Voluntary Provident Fund (VPF) and Public Provident Fund (PPF) and why.
The Voluntary Provident Fund (VPF) is an extension of the Employee Provident Fund. Basic salary and dearness allowance contribute 12 percent to the EPF. On investing more than that, it is counted in VPF. Although it can be 100 percent of the maximum basic salary. If the person can invest in it, then who is salaried. It is invested till retirement, as well as there is no minimum limit. Talking about tax and returns on EPF / VPF, interest rate has not been announced for the financial year 2020-21.
Taxation Rules (VPF Tax Rules)
This is 8.5 percent for the financial year 2019-20. One gets the benefit of deduction under Section 80C of Income Tax Act by investing in EPF or VPF. The limit of section 80C is 1.5 lakh rupees. The calculation of interest is annual and it is completely tax free. However, after the change in the rules, if you invest more than 2.5 lakhs from the new financial year, the interest income of the additional fund will be taxed. VPF and EPF belongs to EEE (exempt, exempt, exempt) category.
PPF for the public
Public Provident Fund i.e. PPF was brought for the common people. Anyone can invest in it. However, a maximum of Rs 1.5 lakh can be invested in a financial year. The investment period is 15 years. Beyond that the investment can be carried forward for a period of 5-5 years. At least 500 rupees must be invested in a financial year. If you do not do so in a financial year, then the PPF account is de-activated. If you invest in it, you will get the benefit of deduction under section 80C. Its limit is 1.5 lakh rupees.
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PPF Tax Rules
Talk about returns and tax benefits on PPF. The interest rate for the March quarter of 2021 is 7.1 percent. The interest rate is updated every quarter. The benefit of deduction under investment 80C, interest income is completely tax free and maternity is also tax free. It belongs to EEE (exempt, exempt, exempt) category. It is also a safe mode of investment as the government guarantees security.
Provident fund is a great option for fixed income
In such a situation, if you fall in the high tax bracket and want to invest in fixed income, then provident fund is a great option. There is an option of EPF for salaried and PPF for self-employed. If the portfolio is large, then both can be invested. In this, the return is completely tax free.
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