Are you planning for your future? Security and financial stability are important aspects of life that everyone should consider. This article will discuss two ways to ensure financial security: Public Provident Fund (PPF) and Gratuity. Both PPF and Gratuity offer tax benefits, but they differ in the way they work and the benefits they offer. To help you make an informed decision, we have included a PPF calculator and gratuity calculator at the end of this article. Read on to learn more about these two methods of financial security planning.
Public Provident Fund (PPF) – How Does it Work?
The Public Provident Fund is a savings instrument launched by the Government of India in 1968. It is designed to encourage small savings and offers income tax benefits. The PPF account holder contributes a certain amount of money each year and earns a fixed rate of interest, which is decided by the Government from time to time. The contributions made to the PPF are eligible for deduction under Section 80C of the Income Tax Act, 1961. The maximum limit for investments in a financial year is Rs 1.5 lakhs, and withdrawals can only be made after completion of 15 years from the date of opening the account or earlier, with premature withdrawals up to 50% of the balance available at the end of 4th year or any subsequent year subject to certain conditions as prescribed by rules framed under Public Provident Fund Scheme,1968.
The money deposited into the PPF account will earn a predetermined rate of interest. This interest income earned is not taxable, and the funds can be withdrawn after 15 years, either in a lump sum or in installments.
Gratuity – How Does it Work?
The Gratuity is an additional monetary benefit offered to employees upon completion of a certain service period. The amount of gratuity payable depends on factors such as salary, number of years served, etc. It is usually paid by employers to their staff members as an acknowledgment of their long-term services. Gratuity is always paid when working conditions are terminated due to death, retirement, or resignation from work, with minimum qualifying periods varying from 5 to 7 years, depending upon the organization’s policy.
The gratuity amount is calculated based on the salary and the number of years served by the employee. The maximum amount of gratuity that can be received in India per employee is Rs. 10 lahks, as provided by the Payment of Gratuity Act, 1972. Gratuity payments are exempt from taxes under Section 10(10) of the Income Tax Act, 1961, up to a certain limit.
Factors to Consider When Choosing Between PPF and Gratuity
PPF and gratuity offer tax benefits, but there are other factors to consider when deciding.
The amount of money you can invest in a PPF account is far greater than the amount of money you can receive as gratuity. The maximum contribution limit for a financial year is Rs 1.5 lakhs, while the maximum amount of gratuity that can be received per employee is Rs 10 lakhs. Therefore, if you are looking for substantial returns on your investment, choosing a PPF plan may be the right option.
Another factor to consider is the length of time it takes before funds become available. Withdrawals from the PPF account can only be made after completing 15 years from the date of opening the account or earlier, with premature withdrawals subject to certain conditions. On the other hand, gratuity is payable when working conditions are terminated due to death, retirement, or resignation from work, with minimum qualifying periods varying from 5 to 7 years, depending upon the organization’s policy.
For individuals who are looking to secure their financial future, PPF and Gratuity both offer advantageous tax benefits. However, there are several factors to consider when choosing between the two. PPF offers higher returns but takes longer for funds to become available, while gratuity offers shorter waiting times but lower returns. To better understand which option is best for you, use our free PPF calculator and gratuity calculator at the end of this article. With these tools, we hope that you will be able to make a more informed decision about your future financial security.