TAX PLANNING THROUGH PPF

	HOW TO OPEN A PPF ACCOUNT :
	A Public Provident Fund Account can be opened in a branch of State Bank of India or its subsidiaries and also at specified branches of other nationalised banks. It can also be opened at any Head Post Office or specified Sub-Post Offices. The account can be opened by :
	-	an adult individual in his/her own name or
	-	a guardian on behalf of a minor or
	-	karta or any member on behalf of HUF.
	Minimum yearly deposit should be Rs.100 and the maximum is limited to Rs.60,000. PPF account is basically for a period of 15 years. It may be extended further for a block period of 5 years by exercising option in "Form H" within one year from the completion of initial 15 years/the period of account. A susbcriber may likewise avail of extension facility each time for further block of 5 years as provided in note below para 9(3B) of the PPF Scheme, 1968.
	BENEFITS OF PPF ACCOUNT:
	1.	Tax rebate under section 88 of the Income Tax Act is allowed in the case of an individual on the amount contributed in a PPF account in his own name or in the name of spouse or any child of such individual. The child may be of any age and even the contribution in PPF account of married child will also be eligible. In the case of Hindu Undivided Family contribution made in the PPF account in the name of any member of the family will be eligible for rebate under section 88.
		From Asst. Year 1997-98, the overall tax rebate under section 88 is allowed as under :
		Rate of Rebate Max.  Amt. In case of individual, whose income derived from the exercise of his/her profession as an author, playwright, artist, musician, actor or sportsman (including an athlete) is 25% or more of his/her total income 25% Rs.17,500 In any other case 20% Rs.16,000
	a)
	(b)
	2.	The Interest on PPF is totally exempt from Tax under section 10(11). The rate of interest is 11% and if we analyse the Income Tax impact, if the tax would have been payable on the interest, the effective rate comes upto 15.71 per cent depending upon the tax-slab, in which the taxpayer falls. The exact calculation is as under:-
		Tax slab rate Tax free interest Taxable interest 10% 11% 12.22% 20% 11% 13.75% 30% 11% 15.71%
		In case a tax payer's income is more than Rs.1,50,000 and he is liable to pay surcharge @ 15%, the effective rate of interest on PPF will come to 16.79%, if tax would have been payable on such interest.
	3.	Withdrawals from the PPF account is permissible from 7th year to the following extent on making an application in Form C-
		An amount not exceeding 50% of the amount that stood credited at the end o the 4th year immediately preceding the year of withdrawal or at the end of the preceding year, whichever is lower and reducing therefrom the amount of loan taken from PPF account remaining unpaid, if any.
	4.	Loan facility is available to the account holder from the 3rd year of the opening of the PPF account. The loan amount can be upto 25% of the balance lying credit at the end of the second preceding financial year. The loan is repayable in 36 months and shall carry interest of 1% above the rate allowed to the subscriber that means 13%. If the loan amount is not repaid within the stipulated period, the interest rate can be increased to 18%. However no loan can be obtained after the sixth financial year as withdrawal facility begins at that time (as discussed above).
	5.	The amount lying in PPF account cannot be attached under any order or decree of court in respect of any debt or liability incurred by the account holder. Even in case a person becomes bankrupt, the amount of PPF account cannot be attached.
	6.	Nomination facility is available. In the event of death of the account holder, the nominee or legalheir may be paid the amount lying in the account even before the expiry of 15 years period.
	7.	Tax benefit even without affecting cash after 6 years; there is unique scope of availing tax rebate by making withdrawal from PPF account after 6th year and depositing the equivalent amount every year, which is demonstrated in the following table:
	Year Amount of deposit Withdrawal Intt. Balance Tax Benefit on deposit Tax Benefit on Intt.
	1 1000 1000 200 Nil 2 1000 110 2110 200 22 3 1000 232 3342 200 46 4 1000 368 4710 200 74 5 1000 518 6228 200 104 6 1000 685 7913 200 137 7 1687 1687 870 8783 337 174 8 2390 2390 966 9749 478 193 9 3176 3176 1072 10821 635 214 10 4057 4057 1190 12011 811 238 11 4544 4544 1321 13332 909 264 12 5089 5089 1467 14799 1018 293 13 5700 5700 1628 16427 1140 326 14 6384 6384 1807 18234 1277 361 15 7150 7150 2006 20240 1430 410
	9235 2847
	In the above table saving of tax of Rs.2847 on PPF interest has been calculated assuming that the tax payer falls in the tax bracket of 20%. In cases, where the tax payer falls in the slab of 30% tax rate, the saving of income tax on PPF interest will be Rs.4,271 apart from the tax saving of Rs.9,235 in respect of original contributions of Rs.6,000 in the first six years. Thus the aggregate tax saving can be Rs.12,082 or Rs.13,506 depending upon whether one falls in the tax bracket of 20% or 30% respectively.
	CAUTION:
	Section 88 of the Income Tax Act requires that the contributions to PPF should be made out of the assessee’s total income which is chargeable to tax. As a matter of fact the amount withdrawn from PPF is not the income, therefore in case the same amount which was withdrawn from PPF is redeposited in the PPF account, the legal requirements will not be satisfied. However, this problem can be overcome by first contributing to PPF and then making withdrawal. Alternatively the deposit in PPF can be planned from income and the amount withdrawn from PPF account may be used for expenses or making investments.
	DEPOSITING MONEY IN PPF ACCOUNT OF MINOR :
	If money is deposited in the account of minor, the parent depositing such money is entitled to rebate undersection 88 and furthermore the provision of clubbing of income under section 64 will not attract as the interest on PPF is totally exempted under section 10(11).
	The amount deposited by parents in the account of minor shall tantamount to be the gifts and therefore the aggregate contribution to minors account should be within the exemption limit for the purpose of gift tax, which is Rs.30,000. Where the contributions exceed the exemption limit, gift tax liability on the excess amount will arise. However, gift tax has been abolished w.e.f. 1.10.98, so this will no more a problem.
	Similarly, one can make contributions in PPF account of his wife without attracting clubbing provisions.
	INTEREST FROM THE DATE OF PRESENTATION/DEPOSITING OF CHEQUE :
	PPF account gets credit from the date of presentation of cheque and as such interest is paid on the amount of cheque if presented on or before fifth of the month even if realised subsequently.
	The privilege of earning the credit on the date of presentation of the cheque is enjoyed only in case of deposits with PPF and UTI. In all other cases, (including NSS and NSC) it is the date of realisation which is taken into account. In case of PPF, interest for the full month is given on the minimum balance in the account between the 5th and the end of the month, whereas, in the case of NSS-87 and NSS-92, the date is 10th of the month. Ironically, the Schemes under the same wing have different systems and procedures.