Comparision between Real Estate Vs PPF -- which is better for investment?
Among the different investment options you have in front of you, buying a property (investing in real estate) and investing in PPF are two popular avenues. Here we compare between these two kinds of investments to decide which one is better than the other and for what reasons you must choose one or the other.
Real estate investment
Real estate investment means buying a property. In this investment option, you buy land or property. Some kinds of properties cost you money on a regular basis to hold them. A vacant parcel of land invites taxes to be paid. For buying and maintaining a property you must spend the money out of your pocket dissolving your earnings and savings or you must take a loan. In some cases the property purchase can become unaffordable when the cost is too high. Some real estate investments can generate cash. For example, we can make a mention about the rental houses, apartment buildings or strip mall. In such cases, the tenants are going to send you checks which you can use to pay off the loan and expenses and keep the rest as profit.
Section 84 lets you claim exemptions on the interest paid on home loans. Section 80 C lets you claim tax benefits on repaying the principal amount. The maximum tax saving limit is 1.5 lakh per annum. The short term gains from property is taxed on par with regular income. The long term capital gains are taxed depending on your income and marital status. Depreciation is the largest tax deduction available to you from real estate investment.
Upon your invested amount, the PPF scheme gives 8% interest. The interest is compounded on an annual basis. You can choose to invest anywhere between Rs. 500 or Rs. 1.5 lakh per year. The investment per year can also be made in several installments or in one lump sum cash. The minimum amount payable to open a PPF account is Rs. 100. The minimum amount required in your account to operate it is Rs. 500. The maturity period of a PPF account is 15 years. You can choose to extend this for five more years after the maturity period. A PPF account cannot be closed before 15 years. Starting from the 7th year of opening the account, you can withdraw cash if you want. Loan facility is also made available from the 3rd year of opening the account.
PPF investment is considered under Section 80C of the Income Tax Act of India for tax exemption. This investment is considered under Exempt, Exempt, Exempt tax basket. The tax benefit is for a maximum amount of Rs. 1.5 lakhs per financial year. You can also claim a tax deduction for the PPF accounts of your spouse and children.
Choosing between the two
While considering which one is a better form of investment among PPF and real estate, you need to also consider your priorities and expectations from the investment. All real estate properties do not escalate in value. The interest out of PPF though might seem less cannot be underestimated given the long period of investing in this vehicle. However, if flexibility, and liquidity are your expectations, real estate is a better option as you can sell it whenever you want. If you want a risk free investment, PPF can be a good option.