PPF contributions made every year are eligible for tax deductions under Section 80C of the Income Tax Act, 1961. The deductions can be claimed by anyone for the same limit. The deduction limit for PPF deposits was Rs.1 lakh which has been increased to Rs.1.5 lakhs from FY 2014-15.
PPF accounts also have a maximum deposit limit of Rs.1.5 lakhs per year, therefore, all deposits made to your PPF account can be claimed as deductions u/s 80C. Section 80C allows for a maximum deduction of Rs.1.5 lakhs per year inclusive of all investment instruments.
PPF accounts also offer other tax benefits. Interests earned from PPF deposits are tax-free, while wealth tax is not applicable on PPF accounts and proceeds. Therefore, PPF accounts offer you triple exemption benefits – deduction on deposits, tax-free returns and no wealth tax.
Tax saving through PPF
Suppose your yearly income is Rs.6 lakhs. Your benefits with and without claiming deductions under Section 80C will be as follows:
| With deductions | Without deductions | |
| Income | Rs.6 lakhs | Rs.6 lakhs |
| Exempted income | Rs.2.5 lakhs | Rs.2.5 lakhs |
| Deductions u/s 80C | Rs.1.5 lakhs | - |
| Taxable income | (6-2.5-1.5)=Rs.2 lakhs | (6-2.5)=Rs.3.5 lakhs |
| Income tax (@ 20%) | Rs.40,000 | Rs.70,000 |
| Cess (@ 3%) | Rs.1,200 | Rs.2,100 |
| Net tax | Rs.41,200 | Rs.72,100 |
As you can see, by investing in a savings instrument like PPF, you can potentially save Rs.31,900 in income taxes every year. And this does not include the benefits on the interests that you earn while staying invested in PPF. As such, PPF investments are a great opportunity at long term savings for everyone.
How to claim deductions on PPF investments
The process of claiming PPF investments as deductions under Section 80C involves submitting the details of the PPF investments made in a year in your income tax returns. There is a section for exemptions under 80C and you can enter the amount invested by you to claim deductions, along with supporting documents.
