Ahead of Union Budget 2023, experts have proposed the government to increase the limit of Public Provident Fund (PPF) to Rs 3 lakh. Currently, Section 80C of Income Tax Act provides deductions on various investments up to Rs 1.5 lakh per year from one's taxable income. This section covers PPF/Employees' Provident Fund (EPF), Equity Linked Saving Scheme (ELSS), National Pension System (NPS), and more. Now, experts are demanding to escalate the limit of PPF to Rs 3 lakh.
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Why the proposal?
The PPF investment limit has not been raised for several years. However, the popularity of the scheme has been constantly growing. This retirement-focused investment instrument attracts investors because of its Exempt-Exempt-Exempt (EEE) tax status. The maturity amount and the overall interest earned during the investment period are tax-free.
Given that, Institute of Chartered Accountants of India (ICAI) has demanded an increase in PPF limit and said that this will boost the domestic savings as a percentage of GDP and will have an anti-inflationary impact.
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The ICAI said that the increase in the deposit limit of PPF is important as it is the only safe and tax-efficient savings scheme which is made available to self-employed persons as well as salaried individuals.
“While the assessees in employment have the compulsion of saving 12 percent of their salary (with a matching contribution from employers), the only safe and tax-efficient option available for self-employed assessees is PPF. Hence, we suggest government to increase the ceiling of PPF contribution to Rs 3 lakh,” said the ICAI.
In 2014, the limit for maximum deduction under Section 80C was raised to Rs 1.5 lakh. Although, the continuous rise in living expenses exhausts this limit in just one or two contributions. And, no more scope is left for further tax saving under Section 80C.
Tapati Ghose, Partner, Deloitte India also thinks that government should look at increasing this limit to Rs 2.5 lakh, considering the increase in cost of living and inflation.
"This will have two-fold benefits, viz., individual taxpayers would be willing to save more and will benefit from a lower tax outgo, thereby increasing disposable income to meet the increase in price of various' commodities," she said.
About PPF
PPF has a lock-in period of 15 years and individuals can invest Rs 1.5 lakh in a year in it. The interest rate on PPF is reviewed every quarter and may change depending on the government announcements. At present, it offers a tax-free return of 7.1 percent annually.
In order to open a PPF account with the post office, customers are required to visit the office once and then they can handle the account online with India Post Payments Bank (IPPB) app.
(Edited by : C H Unnikrishnan)
As a financial expert deeply immersed in the intricacies of India's financial landscape, I bring a wealth of knowledge and experience to shed light on the proposed changes to the Public Provident Fund (PPF) limit ahead of Union Budget 2023.
Firstly, it's essential to understand the current financial landscape. Section 80C of the Income Tax Act plays a pivotal role in providing deductions on various investments, including PPF, EPF, ELSS, NPS, and more. The existing limit for these deductions stands at Rs 1.5 lakh per year, shaping the financial decisions of countless individuals.
The crux of the matter lies in the experts' proposal to increase the PPF limit to Rs 3 lakh. This suggestion stems from the stagnancy in the PPF investment limit over the years, despite its increasing popularity. The PPF's attractiveness arises from its Exempt-Exempt-Exempt (EEE) tax status, where the maturity amount and interest earned during the investment period remain tax-free.
The Institute of Chartered Accountants of India (ICAI) has taken a firm stance on this proposal. According to the ICAI, an escalation in the PPF limit is crucial for several reasons. Notably, it is the only safe and tax-efficient savings scheme available to both self-employed and salaried individuals. The ICAI argues that increasing the PPF ceiling to Rs 3 lakh will enhance domestic savings as a percentage of GDP and counteract inflationary pressures.
Furthermore, the ICAI emphasizes the importance of PPF for self-employed individuals who lack the compulsion to save a percentage of their salary, unlike their employed counterparts. With the current scenario in mind, the ICAI urges the government to consider this adjustment.
The backdrop to this proposal involves the history of Section 80C deductions. In 2014, the maximum deduction limit under Section 80C was raised to Rs 1.5 lakh. However, experts argue that the continuous rise in living expenses quickly exhausts this limit, leaving limited room for additional tax savings.
Tapati Ghose, Partner at Deloitte India, aligns with the call for an increase in the PPF limit. Ghose suggests considering a limit of Rs 2.5 lakh, taking into account the rising cost of living and inflation. This adjustment, she believes, would not only encourage individual taxpayers to save more but also result in a lower tax outgo, thereby increasing disposable income.
To delve into the specifics of PPF, it's crucial to note its lock-in period of 15 years and the current annual investment cap of Rs 1.5 lakh. The interest rate on PPF, subject to quarterly reviews, currently stands at a tax-free return of 7.1 percent annually.
In conclusion, the proposed increase in the PPF limit to Rs 3 lakh is a strategic move aimed at aligning financial policies with the evolving economic landscape. Experts argue that such a change would not only address the changing financial needs of individuals but also contribute to the overall economic well-being of the nation. As we await the Union Budget 2023, these discussions highlight the dynamic nature of financial planning in India.
