PPF Calculator: Can investment in Public Provident Fund get you Rs 91,418/month tax-free income? See calculations to know
Public Provident Fund (PPF): People use PPF investments for retirement planning, where they can contribute up to Rs 1,50,000 in a financial year and get 7.1 per cent interest rate on that. In the long term, the interest can help you get a substantial amount that they can use for their daily expenses. While PPF can work as an effective debt option for the diversification of an investor's portfolio, the maturity amount in PPF is tax-free.
PPF Calculator: An individual can open a PPF account in a post office or a bank. The post office offers a 7.1 per cent interest rate on PPF investments. The finance ministry reviews this interest rate every 3 months. The minimum contribution in a financial year is Rs 500, while the maximum is Rs 1.50 lakh. The lock-in period in the scheme is 15 years. On the completion of the mandatory period, one can withdraw their 100 per cent retirement corpus. But if they want, they can take extensions for unlimited blocks of 5 years each. During these extensions, they can opt to contribute or continue their account without making any investment. Even if they don't make any investment after the lock-in period, they will keep getting interest on the invested amount. If the subscriber continues their PPF account without further investments, they can withdraw the PPF amount once in a financial year. Know more about PPF in this write-up, and also about how a PPF account holder can get Rs 91,418 a month tax-free income just from the interest of their EPF contribution.
Photos: Unsplash/Pixabay
How PPF can be used for retirement planning
Since PPF is not market-linked and offers a fixed interest rate to the account holders, it can be used as a debt option for the diversification of the retirement portfolio.
How PPF can be used for retirement planning
Though the interest rate is 7.1 per cent, which is much less than many market-linked investment options. But the interest earned and the maturity amount are tax-free in PPF. Apart from that, it also provides tax benefits on deposits up to Rs 1,50,000 lakh in a financial year under Section 80C of the Income Tax Act, 1961.
How to get maximum output from PPF investment
To get the maximum benefits of PPF contributions, one needs to invest between April 1 and 5 every year, so that the interest will be calculated for the entire financial year. The interest will be credited to the accountholder's account on March 31 of every year.
Maturity on Rs 1,50,000 yearly PPF investment in 15 years
Since 15 years is the lock-in period, if one is 25 years old and starts investing Rs 1,50,000 in a financial year before April 5 every year, in 15 years, the invested amount will be Rs 22,50,000, the estimated interest will be Rs 18,18,209, and the estimated maturity value will be Rs 40,68,209.
Maturity on Rs 1,50,000 yearly PPF investment in 20 years
Here, if they take a 5-year extension and keep investing Rs 1,50,000 every year before April 5, the invested amount in 20 years will be Rs 30,00,000, the estimated interest will be Rs 36,58,288, and the estimated maturity will be Rs 66,58,288.
Maturity on Rs 1,50,000 yearly PPF investment in 25 years
Here, if they take another extension of 5 years and keep investing Rs 1,50,000 every year, in 25 years, the investment will be Rs 37,50,000, the estimated interest will be Rs 65,58,015, and the estimated maturity will be Rs 1,03,08,015.
Maturity on Rs 1,50,000 yearly PPF investment in 30 years
Here, if they take one more extension of 5 years and keep investing Rs 1,50,000 every year, their investment in 30 years will be Rs 45,00,000, the estimated interest will be Rs 1,09,50,911, and the estimated maturity will be Rs 1,54,50,911.
How one can get Rs 91,418 per month
After 30 years, the age of the one who started investing at 25 will be 55. At that stage, they can stop investing in PPF. Their estimated corpus will be Rs 1,54,50,911, and they will keep getting interest on it.
Yearly interest on Rs 1,54,50,911 retirement corpus
The yearly estimated interest on a Rs 1,54,50,911 retirement corpus will be Rs 10,97,014.681.
Yearly interest on Rs 1,54,50,911 retirement corpus
This is the amount the PPF account holder can withdraw once in a year. If we divide it by 12, the account holder can get Rs 91,418 a month. It will be tax-free income.