PPF Or Tax Saving FD: Which is better?

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  1. Dear Sir/Madam

    I am on tax slab of 30.9% and since I have resettled back in India, I was not aware or informed by my tax consultant, regarding Tax Savings instruments. However, I cannot cry over spilt milk.

    What I would like to know where should I put Rs 150,000 allowed (tax free) (in PPF or Tax Savings FD)? Considering my age 70? Which is a better option?

    Can I invest Rs 150,000 every year which can be claimed under 80C in either of it or it is only available for PPF? In PPF can I withdraw (allowed amount) every year after 5 years or it is only once of?

    Your article which i read is of a professional standard.


    Prof Gohil
  2. Karan Batra

    Karan Batra Well-Known Member

    Dear @Aniruddhsinh M Gohil

    1. The limit for tax deduction under Section 80C has been increased to Rs. 1.50 Lakh from this year. Accordingly, the max amount allowed to be invested in PPF Account has also been increased to Rs. 1.50 Lakhs.

    However, there has been no corresponding announcement for increase in max amount of investment in Tax Saving Fixed Deposit and therefore the max limit is Rs. 1,00,000 only

    2. You can invest the amount in either of them and the total of both of them would be considered while claiming deduction.

    3. You can withdraw the amount from PPF Account anytime after 5 years and this amount can be withdrawn any no. of times after 5 years. However, only 50% of the amount in your account can be withdrawn which is a major drawback of PPF Account.

    My suggestion

    As your age is 70 years, I would advise you to give more preference to Tax Saving Fixed Deposit as its tenure is shorter i.e. 5 years only as compared to PPF which has a tenure of 15 years.

    So, I would advise you to first invest Rs. 1 Lakh in Tax Saving FD and in case you intent to invest more - then you can invest in PPF Account as well.

    The total amount that has been invested by you in Tax Saving Fixed Deposit and PPF Account can be claimed as a deduction under Section 80C
  3. Yogesh Tripathi

    Yogesh Tripathi New Member

    This answer is useful to me as well, I would like to know further that interest of investment after maturity is taxable in FD or not? as PPF interest is fully non taxable.
    My father`s age is 65 and his income from pension as well from FD come in the slab of 20%.
    Any ways to save tax by investing for short term like 5 years?
  4. Karan Batra

    Karan Batra Well-Known Member

    Dear @Yogesh Tripathi

    The Interest earned on Tax Saving fixed Deposit is taxable as per the Income Tax Slab Rates of the Individual
  5. Yogesh Tripathi

    Yogesh Tripathi New Member

    thanks, it is only PPF, where earning(interest) is tax free, am I right?
  6. Prabal

    Prabal New Member

    Mr. Gohil,
    You shd invst in tax saving FD given yr age as PPF is a much longer term invst.
    Yes, you can invst every year in 80 C to the extent of 150k or till the law is changed ( in the annual budget ). I did not see the tax saving FD's limit being increased to 1.5 l...pls check this.
    You can withdraw based on certain rules in PPF after a minimum of 5 yrs for only 50% though....details of the rules I am not fully conversant with.There are certain categories of expenses for which this is allowed.
    Based on the current market and economic situation, in case you do not need interest income, the best option would be invst in Tax saving Mutual Funds where the lock in is 3 yrs : this is also a 80C invst and can be expected to compound much better than PPF or Fds...though it does expose you to market risk.
    j_srikumar and Neha Sharma like this.
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