Call Income tax on PPF(Public Provident Fund)
Public Provident Fund (PPF) is a long terms saving cum investment plan, generally implemented by individuals for planning their retirement savings. PPF fund is a facility provided by government of India to every citizen of this country. PPF is one of the safe investment option providing numerous tax benefits.
Investing in PPF:
Investing in PPF can be a very systematic move to plan the portfolio management and tax planning process. Following are some important features of a PPF A/c:
- A PPF account can be opened for a period of 15 years
- Minimum investment Rs.500 and Maximum investment Rs. 1,50,000 in a year.
- Guaranteed and Risk-free returns
- Can be opened anywhere and by anyone
Taxation of PPF:
An investment in PPF account provide numerous tax benefits. Let us have a look at how investing in PPF can help you save tax.
- Deposit benefits under Section 80C
The amount deposited in PPF every year is allowed as deduction under Section 80C which is restricted to a maximum of Rs.1,50,000 every year. Even you cannot deposit amount in PPF more than Rs.1,50,000 in a year.
The amount deposited in PPF every year is allowed as deduction under Section 80C which is restricted to a maximum of Rs.1,50,000 every year. Even you cannot deposit amount in PPF more than Rs.1,50,000 in a year.
- Interest on PPF
Interest received on the deposits in the account of PPF are also not liable to tax.
- Maturity proceeds
Maturity amount of PPF at the end of 15 years will also be exempt from tax
Thus, PPF is an E-E-E category investment option where deposits, interest accrued and maturity, all are EXEMPT from tax.
Currently, PPF accounts are offering interest rate of 7.1%. The government reviews the PPF interest rate every quarter. So, your PPF interest rate can be impacted by factors such as economic conditions, current interest rate regime, etc. But once the rate is declared by the government, PPF returns are assured at the applicable rate.
Other important points to consider while investing in PPF:
Apart from the tax benefits on PPF, the Account provides multiple benefits, such as partial withdrawal, loans against PPF, as they are government-backed and assured returns. They are as follows:
- Compounding factor
A long term saving habit will yield the benefit of compounding interest on deposits made in PPF.
- Assured Returns
PPF Account mobilises small savings from investors into long-term capital appreciation coupled with interest payments.
- Partial withdrawal
- It is possible to withdraw the complete amount of PPF upon its maturity only. However, an option of partial withdrawal is also available to investors. If account holders are in need of funds, and wish to withdraw before 15 years, the scheme permits partial withdrawals from 6th year i.e. on completing 5 years.
- Facility of loan against PPF
You can take a loan against your PPF account after completion of a year from the date of the initial deposit. The loan amount can be a maximum of 25% of the total available amount.
- PPF Account of NRI to continue if existing account is active
Option of opening a new PPF account is unavailable for NRIs. If you had a PPF account as a resident Indian and have become an NRI, you can continue making deposits into the account, but you cannot open new PPF accounts.
Conclusion:
PPF is one of the risk-free, long-term and tax saving investment option which is also a government backed facility. Investment, maturity and interest accruals in a PPF account are also tax exempt making it one of the best tax saving compounding option for resident individuals.
About Author:
CA Chinmay Shirish Agate
Chinmay Agate is a Practicing Chartered Accountant having 4+ years of experience and expertise in the field of Direct Taxation and Auditing compliances. In the past, he worked in various CA firms and comes with wide industry experience from services, retail to manufacturing to trading where he has handled various complex assignments. He has keen interest in Forex and Derivative knowledge as well as fundamental analysis.