PPF Tax Benefits
Public Provident Funds have been growing in popularity and an increasing number of customers are starting accounts to enjoy the benefits they provide. The amount of money you invest in PPF can be claimed as deduction under Section 80C of the Income Tax Act.
The interest accrued is tax free and PPF is backed by the government of India, making it not only among the safest, but the best instruments for anyone who wants to save money.
Tax benefits of PPF
Contributions made annually to your PPF account will be expect from tax. As of 2015-16, the amount that can be claimed is Rs. 150,000. However, the entire amount need not be invested in Public Provident Fund, it is just the maximum claimable amount. For instance, let’s say that an individual contributes Rs. 50,000 towards his Employee Provident Fund. He also pays an annual premium of Rs. 25,000 towards an insurance policy.
Since insurance premium and Employee Provident Fund contribution can both be claimed as deductions under Section 80C, he can claim full exemption by investing another Rs. 75,000 into the PPF account. In case the individual has extra money that he wishes to invest, Rs. 150,000 can be put into the PPF account but the amount that will be exempt from tax is only Rs. 75,000 based on the aforementioned scenario.
Should an individual possess two accounts – one personal and one for a child (minor), the money invested in both accounts are claimable but the maximum limit to which tax benefits can be claimed will not exceed Rs. 150,000. The same applies to individuals who have three accounts – one personal and two for their children (minors).
Exempt benefits
Public Provident Fund is called Exempt, exempt as the money invested in the account is exempt under Section 80C, the interest accrued through the account is exempt from tax and there is no tax deducted as source if the interest accrued in a financial year exceeds Rs. 10,000, and because withdrawals from a PPF account are also exempt from tax.
In the first case, exempt refers to the fact that the money invested in the account is eligible for deduction as per Section 80C of the Income Tax Act, subject to maximum exemption limit.
The money invested can be deducted from the individual’s whole taxable income. In the second case, the earned interest won’t be taxed or added to the whole income. In the third case, exempt refers to the money earned from the investment during the time at which it is withdrawn. It is tax free at this point.
FAQs on PPF Tax Benefits
- What tax benefits does a PPF account provide?
PPF falls under the Exempt-Exempt-Exempt (EEE) category, which means that all deposits made in the account are deductible under Section 80C of the Income Tax Act. In other words, the principal amount invested in a PPF account is eligible for a tax deduction.
- Are there tax benefits associated with a PPF account?
Yes, investing in a PPF account offers tax benefits.
- What is the maximum tax deduction available through PPF?
PPF offers a maximum tax deduction of up to Rs 1.5 lakh for investments made in each financial year under section 80C of the Income-tax Act, 1961.
- Under which section of the Income Tax Act can PPF deposits be deducted?
PPF deposits can be deducted under Section 80C of the Income Tax Act, providing tax benefits to the investors.
- Are the interest earnings from PPF taxable?
No, the interest earned each year on PPF investments is tax-exempt.
- Is the accumulated corpus withdrawn at maturity from PPF subject to tax?
No, the accumulated corpus withdrawn from PPF upon maturity is exempt from tax, making it tax-free income.
- Can I make an early withdrawal from my PPF account?
Yes, it is possible to make a premature withdrawal from a PPF account after 7 years. However, this is subject to specific conditions and attracts a penalty.
- Can I transfer my PPF account to a different branch or office?
Yes, you can transfer your PPF account from one branch or office to another.
- Is it feasible to reactivate an inactive PPF account?
Yes, you can reactivate an inactive PPF account. To do so, you need to submit a written request, pay the applicable fine, and make the minimum annual deposit amount for all the years it was left inactive.
- Are the tax benefits applicable only to the principal amount or also to the interest earned on PPF investments?
Both the principal amount invested in a PPF account and the interest earned on the investments are eligible for tax benefits. The entire value of the investment, including the interest accrued, is exempt from taxation. This makes the PPF scheme attractive to many investors in India as it provides tax benefits on both the principal and interest components.
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