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PPF tax benefits, features and how you can claim deductions of investments via income tax return filing

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New Delhi | Published: June 26, 2018 4:16:16 PM

The rate of return for the PPF deposit is currently 7.60 per cent. The contribution by a subscriber can be made between Rs 500 and Rs 1.5 lakh per annum for a tenure of 15 years.

The rate of return for the PPF deposit is currently 7.60 per cent.

The Public Provident Fund (PPF) is a tax-free savings scheme which was launched in 1968 by the Ministry of Finance (MoF). PPF is one of India’s most tax-efficient plans for salaried people. Contributions to the PPF account made every year are eligible for tax deductions under section 80C of the Income Tax Act, 1961. The deduction limit for PPF deposits was increased to Rs 1.5 lakh from the earlier limit of Rs 1 lakh from FY 2014-15.

The rate of return for the PPF deposit is currently 7.60 per cent. The contribution by a subscriber can be made between Rs 500 and Rs 1.5 lakh per annum for a tenure of 15 years.

Karan Batra, Chartered Account, putting more light on PPF said: “PPF is one of the best investment options to earn tax-free income. It enjoys the twin tax advantage of being eligible for Section 80C deduction at the time of investment and the interest earned is also exempted from the levy of any Income Tax.”

The current PPF interest rate is 7.6% (tax-free). If a person is in the 30% tax bracket and is earning 11% interest from any other source, the after-tax interest rate comes to almost 7.6 to 7.7%. Thus, 7.6% interest earned on PPF is almost equivalent to 11% interest earned on any other investment. Moreover, it is one of the safest investment options as the deposit is with the government and there is no risk of capital depreciation or the interest not being paid timely,” he added.

Tax benefits of PPF account:

PPF enjoys an EEE or ‘exempt, exempt, exempt’ status. It means the PPF account offers subscribers triple exemption benefit — tax-free returns, deduction on deposits and no wealth tax. Also, the interest earned from PPF deposits are tax-free.

How the tax-saving works via PPF?

Let us say that you earn Rs 10 lakh per annum. Your benefits with and without claiming deductions under the Income Tax Act are as follows:

Table 1. Tax Saving Chart for PPF

With deductions

Without deductions

Income

Rs 10 lakhs

Rs 10 lakhs

Exempted income

Rs 4.5 lakhs

Rs 4.5 lakhs

Deductions u/s 80C

Rs.1.5 lakhs

Taxable income

(10-4.5-1.5)=Rs 4 lakhs

(10-4.5)=Rs 5.5 lakhs

Income tax (@ 20%)

Rs 80,000

Rs 110,000

Cess (@ 3%)

Rs 2,400

Rs 3,300

Net tax

Rs 82,400

Rs 113,300

As you can see in the above table, by investing in the PPF scheme, an individual can potentially save Rs 30,900 in income taxe every year. Notably, this does not include the benefits on the interests that they earn. PPF can prove to be a great instrument for minting money if someone decides to be a part of it for long.

How to claim deductions on PPF investments?

Claiming PPF investments as deductions under Section 80C involves submission of details of PPF investments, which are made every year, while filing the income tax return. There is a section for exemptions under 80C and you can enter the amount invested by you to claim deductions, along with supporting documents.

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