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 period of 15 years, the PPF offers a number of tax benefits with minimal risk. Considering the various benefits of PPF, it is only natural to consider investing in this popular scheme. Read on to find out more about Public Provident Fund and if PPF interest is taxable.
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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.
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.
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-
Like every financial scheme, there are some factors you need to consider before investing in the public provident fund scheme. Check them out:
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.
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.
The answer is no to whether PPF interest is taxable or not. PPF falls under the exempt- exempt-exempt (EEE) category. This means, the principal amount, the interest earned and the maturity amount of PPF is completely tax-free.
You can easily open your PPF account in a post office with just Rs. 100. You can start investing from Rs. 500 to Rs. 1.5 Lakhs per annum. You are not allowed to deposit more than Rs. 1.5 Lakh per year in your PPF account under any circumstances.
The government reviews the PPF interest rate every quarter. So, your PPF interest rate can be impacted by factors such as economic conditions, current interest rate regime, etc. But once the rate is declared by the government, PPF returns are assured at the applicable rate.
There is currently no restriction on the number of times you can deposit money in your PPF account in a year. However, the total amount you can deposit in your PPF account is Rs. 1.5 Lakh in a financial year.
Transfer of PPF accounts from one person to another is not allowed. In case of the account holder's demise, the nominee will have to apply for account closure and withdrawal of the balance.
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