PPF Scheme: If you’re looking for a safe, tax-free, and fixed source of income after retirement, the Government of India’s Public Provident Fund (PPF) scheme is perfect for you. This scheme offers a unique combination of investment safety, assured returns, and excellent tax benefits. Currently offering a fixed interest rate of 7.1%, this scheme can be started with just ₹500. We’ll show you how you can use this government scheme wisely to generate a tax-free regular income of up to ₹60,000 per month.
What is PPF, and what are its key benefits
The Public Provident Fund (PPF) is a long-term savings scheme specifically designed for financial security after retirement. Anyone, whether employed or self-employed, can invest in it. Parents can also open accounts in the names of their children. The biggest attraction of PPF is its triple tax benefit.
Investments up to ₹1.5 lakh are tax-deductible under Section 80C of the Income Tax Act. Furthermore, both interest income and maturity amount are completely tax-free. The tenure of a PPF account is 15 years. A minimum deposit of ₹500 can be made per year, up to a maximum of ₹1.5 lakh.
How to use PPF after maturity
The unique feature of PPF is that after completing 15 years, you can extend it in two ways, making it a source of regular income. The first option is extension with contribution, in which you can extend the account for another 5 years and continue depositing new funds every year. The second option, which is best for those seeking a regular income, is an extension without contribution.
You can extend the account for 5-year periods without adding any new funds. This continues to earn interest on the principal deposit, and you can make fully tax-free partial withdrawals from the account every year during this period.
How to Earn ₹60,000 per Month
According to experts, to earn a regular monthly income, you must choose the ‘extension without contribution’ option after 15 years. If a person deposits ₹1.5 lakh every year for 15 years, their maturity amount after 15 years will be approximately ₹40.68 lakh (at a 7.1% interest rate). This ₹40.68 lakh will continue to earn interest.
You can make annual withdrawals. If you withdraw approximately ₹7.20 lakh annually (which includes interest and a portion of the principal), you can withdraw ₹60,000 (₹7,20,000 / 12) every month. This withdrawal will be completely tax-free under PPF rules. To ensure maximum interest, experts recommend investing between April 1 and 5 every year.
Partial Withdrawal Rules
Although withdrawal after 15 years is best for regular income, you can make partial withdrawals after 5 years if needed. After 5 years, you can make partial withdrawals once every financial year. The maximum withdrawal limit is up to 50% of the account balance.