Public Provident Fund |Know All About PPF & Is PPF Interest Taxable?

Name: Public Provident Fund
Brand: Max Life Insurance
Rating: 4.3 (2013 reviews)

Public Provident Fund (PPF), a government-backed long-term investment scheme, is one of the favorites amongst Indian nationals to invest their hard-earned money and get assured returns. With a maturity pe

Written by

Abhishek Chakravarti

BFSI Writer

Abhishek is a financial writer with over 6 years of experience in the BFSI sector. Prior to his current stint with Axis Max Life Insurance, he has worked with leading fintech startups. He specializes in writing about taxation and various investment products like ULIPs, retirement plans, guaranteed investment plans, mutual funds etc.

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Sahil Rawal

BFSI Expert

Sahil Rawal is a digital & brand management specialist with over 10 years of experience in Financial Services Industry. Life insurance professional with expertise in digital marketing strategy, website content marketing and brand communication designed to increase brand awareness, drive engagement & sales.

Understanding PPF

Public Provident Fund is one of the most popular investment schemes in India as it offers long-term benefits with minimal risk as it is backed by the government. As of Q2 2022, PPF interest rate is 7.1% rate per annum and the minimum amount is just Rs. 500 annually. Any Indian resident can sign-up for a PPF account with by filling out and submitting Form 1.

Below are few key features of a PPF account:

Interest rate (as of Q2 2022)	7.1% per annum
Minimum account opening amount	Rs. 100
Minimum annual investment	Rs. 500
Maximum annual investment allowed	Rs. 1.5 Lakh
Account Maturity	15 years
PPF interest taxable	No

Maximum people invest in PPF as offers tax-free returns that can be used for various purposes including creating a corpus for retirement. As the PPF is a government-backed scheme, there are zero chances of losses even if the market fluctuates. The government of India sets and reviews the interest rate for PPF once every quarter.

Is PPF Interest Taxable?

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Investors prefer Public Provident Fund because it falls under the Exemption- Exemption- Exemption (EEE) category so, the answer is no to whether the PPF interest taxable or not. The first exemption is on the deposits you make in a PPF account. Deposits to a PPF account are exempted from the taxation up to a maximum of Rs. 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.

The third tax exemption of PPF is on the maturity amount. When the PPF account matures after 15 years, the maturity proceeds you receive at withdrawal will also be exempt from tax. Considering the EEE benefit offered by the Public Provident Fund, it is definitely one of the best options for generating long-term savings.

Tax Benefits & Features of PPF

The PPF contributions of up to Rs. 1.5 Lakh in a financial year are eligible for tax deductions under Section 80C of the Income Tax Act, 1961. The account holder can claim for the deductions within the given limit.

With a PPF account, you get triple benefits and a lot more. Here are the reasons why PPF is the best tax-saving scheme for you-

1. Get triple exemption

You get tax exemption on the investment, interest rate, and withdrawal amount with the exemption- exemption- exemption status. So, your total accumulated corpus will be free of tax deductions, and you will get to keep the whole amount.

2. Increased compounding

Once you start investing, your PPF account will mature in 15 years. If you decide to extend the maturity period, you will get 5 more years. Now suppose you invest Rs. 60,000 every year for the next 15 years with an interest rate of 7.1 %, you will get Rs. 7,27,284 as the interest rate, and the total amount will be Rs. 16,27,284 upon withdrawal.

If you extend for the next 5 years, you will get Rs. 20,63,315 as the maturity value. Also, because you get an exemption from tax, there will be no tax deduction making it the safest scheme in the market.

3. Best investment if you fall in the heavy tax bracket

With the income tax rate at 30%, it is the best scheme to invest even for investors under the heavy income tax bracket and high salary bar. If you are someone who matches this criterion, then you may have other avenues to invest in to build corpus money, but because of tax exemption, the PPF scheme is far more appealing than others.

4. Investment portfolio stability

Even if you prefer to invest in different funds and have an appetite for risk and mint money, investing in the PPF scheme will stabilise your portfolio. It will bring maximum returns to your portfolio's debt section.

5. Play safe with PPF

In case you are someone who wants to invest money where there is zero loss and maximum returns, the government backed scheme is a haven for you to dabble in. Currently, leading banks are offering interest rates between 4-5%, and the PPF gives an interest rate of 7.1% with zero tax deductions.

Though many other government-run schemes have higher interest rates, they are meant for specific purposes and eligibility criteria.

Factors to Consider When Investing in PPF

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Like every financial scheme, there are some factors you need to consider before investing in the public provident fund scheme. Check them out:

1. 15-years lock-in period

PPF account matures after 15 years and even though are ways to make partial withdrawals before maturity, there are various restrictions on complete withdrawal or closure of PPF account prior to maturity. So, PPF is mainly for those planning to build a tax-free corpus for achieving long-term financial goals such as securing post-retirement finances.

2. Guaranteed Returns

As mentioned earlier, Public Provident Fund is a government-backed scheme, and the returns from PPF investments are assured by the Government of India. This makes PPF a suitable investment for risk-averse investors seeking guaranteed returns. What’s more, the interest rate of the scheme is also decided by the Government of India and reviewed on a quarterly basis. As of Q2 2022, PPF interest rate is 7.1% p.a. compounded annually.

3. Tax Benefits for All Investors

Due to the EEE status of PPF investments, it provides tax benefits to investors irrespective of the tax bracket they belong to. For investors in the highest 30% tax bracket, annual PPF investment to the maximum limit of Rs. 1.5 lakh in a FY can reduce tax liability by up to Rs. 45,000 in a year plus cess. As a bonus, the maturity amount of PPF will also be completely tax-free.

4. Benefit of Compounding

To get the maximum benefit of compounding, you need to stay invested for the long-term so that your investments get more time to grow. The 15-year maturity of PPF account facilitates long-term investments and makes the power of compounding work in your favour. What’s more, you also get the option of extending the account in additional blocks of 5 years after it matures to continue earning tax-free returns and get even more benefits of compounding.

5. Offers One of the highest interest rates

Among government-backed tax saving investments, PPF interest rate is among the highest among assured returns schemes which makes it one of the most lucrative investments in India. While some investments like Employees Provident Fund (EPF), Voluntary Provident Fund (VPF) and Sukanya Sammridhi Yojana (SSY) do offer higher returns with similar benefits, there are various limitations with respect to eligibility for these schemes.

FAQs

Is PPF interest taxable?

Can I open my PPF account in a post office?

In case of market fluctuation or economic instability, will my PPF interest rate suffer?

How many times can I make PPF account deposits in a year?

Can I transfer my PPF account to another person?

ARN:Aug23/Bg/05J

Sources:

economictimes.indiatimes.com/wealth/invest/how-ppf-account-works/how-it-is-taxed/slideshow/71791347.cms

economictimes.indiatimes.com/wealth/invest/why-investors-love-ppf-as-a-tax-saving-investment/suitable-in-a-low-interest-rate-regime/slideshow/89620331.cms

economictimes.indiatimes.com/wealth/invest/7-reasons-why-ppf-is-one-of-the-most-preferred-tax-saving-investments/articleshow/81638531.cms

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