Why investors love PPF as a tax saving investment - ​Exempt-exempt-exempt tax status (2024)

FAQs

Why investors love PPF as a tax saving investment - ​Exempt-exempt-exempt tax status? ›

It offers up to Rs 1.5 lakh deduction on investment made in each financial year under section 80C of the Income-tax Act, 1961. The interest earned each year is also tax-exempt. Finally, the accumulated corpus that you withdraw upon maturity is also exempt from tax, thus making it tax-free income.

As the returns from PPF accounts are fixed, they are used as a diversification tool for the investor's portfolio. Tax benefit: The PPF interest and maturity amount are tax-free under section 80C of the Income Tax Act, 1961.

“The interest on the same amount, if compounded over a long period, could make a significant difference to one's overall return," said Archit Gupta. It is always advisable to invest in the PPF at the beginning of the year. This way you will be earning interest on the deposits for the entire year.

The Public Provident Fund is an investment scheme backed by the government of India that offers a decent rate of interest, which is compounded annually. It is one of the safest and most common investment schemes in India as it guarantees assured returns on the amount invested over a period of time.

To maximise the interest payout on PPF deposits, you should choose to deposit by the 5th of the month, and the sooner in the financial year, the better. If you deposit towards the end of the financial year in March, you will surely save income tax but earn interest only for one month—March—for that FY.

The PPF invested amount, interest/returns earned and contributions made, all need to show in FBAR while filing taxes in USA. In India the contributions made to PPF can be claimed as deduction for tax benefit and interest income on PPF is not taxable.

The current PPF interest rate is 7.1% (Q1 of FY 2023-24), the minimum investment tenure is fixed at 15 years while the investment amount can range between Rs. 500 to Rs. 1.50 lakh in a financial year.

Investing your idle money in a PPF account can prove beneficial in the long run as the scheme is backed by government and offers stable returns. You can start saving via PPF and build a corpus which can be used post-retirement as well as for a future goal.

PPF is worth every cent. It's a transparent protective film that covers any painted surface of your vehicle's exterior, reducing the risk of paint damage. If you recently purchased a car, you'll most likely come across paint protection films or ceramic coatings as options to protect your car's paint.

What are the disadvantages of PPF? ›

Long-term investment strategy:

PPF provides you with long-term financial planning with a deposit period of 15 years, of which the lock-in period is of 7 years. With annual compounding of PPF interest rates, effective returns tend to be more attractive than term deposits with banks.

Max out your PPF account by April 5th

You can make any number of contributions in a financial year. It should total an amount of ₹ 1.5 lakhs. To earn maximum interest, you should contribute the entire amount by the 5th of April. Thus, interest will be calculated on this amount for the next 12 months.

Choosing between PPF and Share Market

If you expect the safety of investment combined with tax benefits and fixed returns, PPF is the best option to choose. If you are willing to take risks in return for higher returns, you can choose from share market investment options.

PPF deposits have a lock-in period of 15 years. Whereas your investment in mutual funds (open-ended) can be redeemed on any business day. The flexibility of redeeming your funds as per the requirement makes mutual funds investment much more liquid than PPF deposits.

1.5 lakh in a FY under Section 80C of the Income Tax Act, 1961. A Tax saving fixed deposit has a higher interest-earning potential than savings accounts. The second exemption is on the interest earned from your PPF deposits. So, if you are wondering if PPF interest is taxable or not, the answer is no, it is tax exempt.

To withdraw funds, you must present the PPF passbook and an application to the bank/post office. The sum withdrawn is not subject to income tax. This is also unchanged in the PPF withdrawal rules for 2021.

The PPF interest rate, on the other hand, has remained unchanged at 7.1%. The Public Provident Fund (PPF) is one of the popular long-term investment schemes backed by the Government of India. It provides security with competitive interest rates and tax-free returns.

The Public Provident Fund (PPF) scheme is a very popular long-term savings scheme in India because of its combination of tax savings, returns, and safety. The PPF scheme was launched in 1968 by the Finance Ministry's National Savings Institute.

Can we withdraw PPF interest every year? ›

Yes, you can withdraw money from your PPF account if you have completed 5 years of continuous contributions. For that, you need to obtain Form-C (PPF Withdrawal Form) from your respective bank, fill it and submit the same along with an application for withdrawal at the bank.

Since PPF is backed by the Central Government of India it is considered safer than other investment options. Moreover, PPF Scheme qualifies for a tax deduction of up to rs 1.5 lakhs under section 80C of the Income Tax Act, 1961. You can invest anywhere in the range of Rs 500 to Rs 1,50,000 every financial year.

Non-Resident Indians (NRIs) are not eligible to open an account under The Public Provident Fund Scheme, 1968. However, NRIs, who had invested in the PPF before becoming a non-resident during the maturity period of the account, can continue to subscribe to the Fund till its maturity on a non-repatriation basis.

That's because most saving instruments like saving bank accounts or PPF give returns that don't beat inflation consistently over a long duration. So when you invest in them, you might grow the corpus but the purchasing power of that money will be lower. Let's take an example.

PPF is the most tax friendly 80C investment option since its maturity proceeds are entirely tax free. After PPF, ELSS is one of the most tax friendly 80C investment options. ELSS capital gains of up to Rs 1 lakh in a financial year are tax free. Capital gains in excess of Rs 1 lakh are taxed at 10%.

Going by that definition, both the EPF and PPF are debt investments – an assured rate of return, and the principal will be returned over a predetermined tenure. So yes, they are both part of the debt portfolio. BUT, they cannot be the only part of your portfolio.

Most bank FDs provide a slightly lower rate of return than the current PPF rate of 7.1%. The highest FD rate in SBI Bank is 5.40% (for a tenure of 5-10 years). The highest FD rate in ICICI Bank is 5.35% for 5-10 years. The highest FD rate in Axis Bank is 5.75% for a term of 5 to 10 years.

This scheme is falls under the EEE category i.e. Exempt, Exempt and Exempt which means if you invest in it, you will get a deduction u/s 80C on your income. Further, the interest you earn on it alongwith its maturity proceeds will be tax-free in the hand of investor.

You cannot deposit more than Rs. 1.5 lakhs in the PPF Account in any given financial year. The deposit frequency, however, is not limited. Earlier, the PPF account max deposit was twelve times in one financial year.

Yes, you can withdraw money from your PPF account if you have completed 5 years of continuous contributions. For that, you need to obtain Form-C (PPF Withdrawal Form) from your respective bank, fill it and submit the same along with an application for withdrawal at the bank.

What happens to PPF account after maturity? ›

After your PPF account matures, you can withdraw the entire corpus or leave the amount by extending the term for as long as you feel feasible, but that can be extended in blocks of 5 years.

Amendment introduced vide the Finance Act 2021-

Section 10(11) and Section 10(12) fully exempted interest accrued on the contribution made by the employee to the 'Recognized Provident Fund' and 'Statutory Provident Fund'.

Public Provident Fund (or PPF) is a common and popular investment scheme used to save tax. It is considered a safe investment avenue as it is issued by the Central Government of India. You can claim a tax exemption of Rs. 1.5 lakh, each year, under Section 80C of the Income Tax Act.

Any contribution towards the Public Provident Fund (PPF) can be filed for tax deduction under Section 80C. Public Provident Funds come with a maximum deposit limit of Rs.1,50,000, allowing an investor to claim the entire deposited amount as an exemption under this Income Tax act.

By investing Rs 2000 per month (or Rs 2000x12 = Rs 24000 per year), you can get up to Rs 7 lakh upon maturity after 15 years.

"Amount beyond Rs 1.5 lakh cannot be deposited in the PPF account as the transaction will be rejected at the time of transfer. Thus, the question of excess amount doesn't arise. Even if the depositor manages to deposit more than the limit, the transaction shall be subsequently rejected.

PPF is the most tax friendly 80C investment option since its maturity proceeds are entirely tax free. After PPF, ELSS is one of the most tax friendly 80C investment options. ELSS capital gains of up to Rs 1 lakh in a financial year are tax free. Capital gains in excess of Rs 1 lakh are taxed at 10%.

There is no age limit for opening a PPF account. Both adults and minors can have a PPF account.

PPF has a maturity period of 15 years. However, under certain circ*mstances, one may also choose to withdraw funds from the PPF account before the account matures.

You can withdraw up to 50% of the amount in your PPF Account after seven years, beginning with the end of the year you made your initial contribution. You can only make one partial withdrawal each year. To withdraw funds, you must present the PPF passbook and an application to the bank/post office.

Can NRI invest in PPF in India? ›

Can NRIs invest in PPF in India from a foreign country? Yes, NRIs can invest in PPF under the following conditions: NRIs may invest in the PPF account they opened when they were Resident Indians. They cannot open a new PPF account after assuming Non-Resident Indian status.

As such, an NRI cannot invest in PPF. However, if people with current NRI status, opened a PPF account before they got the NRI status, they can continue with the account until maturity. *All savings are provided by the insurer as per the IRDAI approved insurance plan.

The account holder must deposit a minimum of Rs. 500 each fiscal year into the account, which has a 15-year validity period. Every financial year, Rs 500 must be deposited as the minimum amount into their PPF account. The account gets inactive if you don't comply with that.