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Tax benefits on Public Provident Fund or PPF Investments

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Public provident fund, which is popularly known as PPF, is a secured long term investment option backed by government of India. PPF scheme is opted as a long term tax saving investment option by many salary and self employed individuals in India. With it’s attractive low risk interest rate and tax exemption benefits, investment in a public provident fund or PPF account is advised by many financial advisers.

Today, in this article we will discuss tax benefits of investing in a public provident fund or PPF scheme.

PPF scheme falls under the Exempt-Exempt-Exempt (EEE) category. This means, contribution to Public Provident Fund account, interest earned from it and maturity proceeds are tax free.

Contribution to a public provident fund has been listed in section 80C as one of the investment option to get eligible for tax deduction. For this reason, contribution to public provident fund can be claimed as a tax deduction from assessee’s gross total income up to a maximum limit as specified under section 80C i.e. 150000.

As discussed above, interest earned during the financial year from your PPF account is exempted from tax.

Employee has to submit a copy of the public provident fund account to their employer as a proof of all the contributions eligible for tax deduction. If employer considered contribution to PPF as a tax deduction, employee will end up paying less tax.

In case, tax deductions is not considered by the employer while calculating TDS on salary, then it can be claimed as a deduction from employee’s gross total income while filing tax return.

Summary of Tax Benefits on PPF

Investment in Public Provident Fund or PPF Scheme has following tax benefits;

  1. Interest earned on Public Provident Fund (PPF) Scheme is fully tax exempted.
  2. Annual subscriptions of PPF qualify for deduction under section 80C of the IT act, 1961 up to the maximum limit of Rs 1, 50,000.
  3. Contribution to PPF account of spouse and children are also eligible for tax deduction under section 80C subject to the maximum limit of Rs 1, 50,000.
  4. Withdrawal from public provident fund is also tax free.
  5. Amount received from PPF account at the time of maturity is not taxable.
  6. In case of death of the subscriber, amount received from public provident fund or PPF account is tax free.

Important points related to public provident fund Investment

  • PPF account can be opened by a resident individual with any nationalized or private banks like the State Bank of India, ICICI, HDFC, AXIS and Punjab National Bank or a Post Office. It cannot be opened in a joint name.
  • Account can be opened with Rs. 100. Annual minimum investment amount to a public provident fund account is Rs.500 and the maximum limit is Rs. 150000.
  • PPF account has lock-in period of 15 years. However, it can further be extended in blocks of 5 years.
  • Partial withdrawals are allowed only after 7 years.
  • Deposit can be either by way of cash, cheque, demand draft or online fund transfer. Mode of payment will not decide eligibility of tax deduction.
  • PPF account can be closed upon maturity i.e. after completion of 15 years.
  • Interest at the time of maturity is not taxable in India.
  • Partial withdrawal is possible only after completion of 6 years i.e. from 7th year onwards.
  • Premature closure of Public Provident Fund account is allowed only under certain specific conditions i.e. situation like for medical treatment, higher education
  • One individual can have only one PPF account in his or her name. If it’s detected that you have more than one account, then all other account will be closed and principal amount contributed will be refunded without interest.
  • Loan facility is available from the third financial year onwards.

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