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THE change in the guidelines for small savings has big implications as far as the public provident fund (PPF) is concerned and the investors should take special note of this. There is a need for investors to rework their existing plan to take into account the change that has been witnessed and get an added advantage.

This will help them to plan better for the long term and here is a look at the way in which the PPF can now be used as an investment option.

Nature of PPF: The PPF is a long-term savings scheme that is offered at the post offices and some public sector banks. This is a 15-year scheme, and is hence, meant for longterm investments so that the amounts here can be accumulated for the purpose of retirement or some other need several years down the line.

For a long period of time, the rate of interest offered on this scheme was 8 per cent. There has been a change now with the linking of the interest rates for small savings to the market rates, and from December 1, the new applicable rate is 8.6 per cent.

The investments can be extended in blocks of five years for unlimited number of times and there is also a tax benefit that is available for the investment under Section 80C of the Income Tax Act.

Higher investment limit: The investment limit under the PPF was at Rs 70,000 per annum till December 1. This created some practical problems, and hence, there was a need to increase this investment limit. This has now been done and the new limit stands at

Rs 1,00,000. This is a suitable figure that the individual must make full use of to ensure that they complete their investment and tax requirements.

At present, the limit for the deduction under Section 80C of the Income Tax Act is Rs 1,00,000, which means that, previously, if there was an investor who wanted to make use of the limit for the investments made under PPF, then they would need to use some other instrument as well to complete the total tax-saving requirements.

This is the reason that the new higher limit will ensure that there can be the use of just the PPF for the entire tax-saving needs.

Period of benefit: The application of the higher limit for the investment will start from December 1, which is in the current financial year itself, so the investors should be ready to make use of this in the last few months that remain in the financial year. At the same time, they should also include the higher figure in their planning for the coming time period.

This means that for all those who have already made the Rs 70,000 investment in the year, then there is still Rs 30,000 that can be used, while for the others, a larger amount remains available for investments.

Further, the higher interest rate will also be applicable from December 1 as mentioned in the notification, and hence, there will be an immediate benefit that will be seen for the investors. What the investors need to watch out for is that fact that the interest rates can come down in the future also and that these are not fixed for the entire duration of the investment, so, just as the higher rates became applicable, the reverse can also happen.

Future gains: The real benefit of the entire development for the investor will come from the fact that the new direct tax code (DTC) also mentions the PPF as an eligible investment that will get the benefit of tax deductions. While there are a lot of existing instruments that will be out of the ambit, the PPF remains, and hence, PPF will have a favourable long term impact that should be utilised effectively in the times ahead.

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