#New Delhi: Investments are often made in various schemes to save tax. Investing money in government savings schemes by buying insurance is one of them. Among them PPF and 5 year tax saver FD are most preferred by everyone. But there is an investment option that is better than these two. Where the investment will yield good returns, tax exemptions are also available under Section 80C of the IT Act.
Voluntary Provident Fund or VPF is being talked about. It is completely different from EPF. It is mandatory for salaried employees to deposit money in EPF. But as the name suggests, VPF is a completely voluntary savings scheme. Here let’s see how returns of VPF are better than the two schemes.
How much profit from where: Currently PPF is earning around 7.5 percent returns. It also has a mandatory lock-in period of 15 years. At the same time, the lock-in period in Tax Saver FD is only 5 years but returns are only 6 percent. Whereas, VPF offers both low lock-in and high returns. Here a 5-year lock-in gives a return of 8.1 percent.
Tax savings: Interest earned on PPF is not taxable. Interest earned from FD is taxable as per account holder’s tax slab. Interest on VPF is also taxed. However, interest earned on investments up to Rs 2.5 lakh per annum including EPF and VPF is tax free.
Benefits of Premature Withdrawal: Premature withdrawal facility is available in both PPF and VPF. But you have to wait for 5 years for PPF. There is no such time limit in case of VPF. Money can be withdrawn from VPF at any time. Premature withdrawal benefits are not matched by tax saver FDs either.
Where to be careful: VPF is a good scheme to save tax besides giving returns. If the combined investment in EPF and VPF does not exceed Rs 2.5 lakh, then Rs. Otherwise, tax will be payable on the return received.