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Investment Simplified > Tax > PPF Tax Exemption: What Does it Mean?
Tax

PPF Tax Exemption: What Does it Mean?

Shivangi Kalra
Shivangi Kalra June 23, 2022 8 Min Read
Updated 2022/06/23 at 11:09 AM
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Public Provident Fund (PPF) account is a long-term investment option. PPF scheme is available for all Indian citizens. The PPF account can be opened in the authorized banks or post offices. PPF has been one of the most popular and affordable investment options for approximately many decades. Many investors prefer to invest in PPF accounts.

Contents
Why Should You Invest In PPF?How Does a PPF Account Work?Is PPF Exempt From Tax?Benefits of PPF Beyond Tax ExemptionFAQs

There are various benefits of a PPF account, but one of the essential ones is PPF tax exemption. The income generated through PPF is tax-free under Section 80C of the Income Tax Act, 1961. The interest rate earned on the PPF account will be credited by the start of the financial year. The Indian government sets the interest rate of the PPF account. Additionally, the maturity proceeds of the PPF account are also exempt from taxation.

The lock-in period of the PPF account is 15 years. So, at the end of 15 years, you will receive the maturity benefits. However, you can extend the maturity period of your PPF account for five years. 

Key Takeaways

  • As per the PPF rules, a minimum of INR 500 contribution has to be made every financial year. The maximum limit allowed is INR 150,000 per year.
  • The maturity amount and interest rate earned in PPF are tax exempted. You will receive PPF tax exemption under Section 80C of the Income Tax Act, 1961.
  • You have options to invest in a PPF account. You can either invest in a lump sum or monthly or annually.
  • The Indian government sets the interest rates on the PPF account. The current interest rate is 7.1%.

Why Should You Invest In PPF?

The PPF account is one of the most popular investment schemes which is backed by the Indian government. It is the best scheme for the long-term investment for post-retirement. It gives assured tax-free returns with attractive interest rates. A PPF account is a long-term investment with a lock-in period of 15 years. So, the amount accumulated in a PPF account can be withdrawn only at maturity, 15 years from opening the account. You can also extend the tenure by 5 years at the end of the lock-in period. Partial withdrawals are only allowed in case of emergencies.

You also get advantages of PPF tax exemption. The tax from your maturity amount is totally free. So, you can create a good corpus for your retirement.

The PPF account also provides loans against the PPF balance. However, you are allowed to take a loan between the beginning of the 3rd financial year and the end of the 6th financial year from the date of account opening.

The PPF scheme is beneficial for the investors who are planning for retirement. The maturity amount can also be used for your child’s higher studies and marriage. The PPF scheme is available at all government-approved banks.

The other main reason to invest in the PPF scheme is that you can easily calculate the maturity amount and interest rate before investing in it. PPF Calculator is a financial tool that helps calculate the income you can receive at the time of maturity. It is effortless to use the PPF calculator. You can add your investment details and get the amount figure reflected in your account.

How Does a PPF Account Work?

The objective of the PPF account is to provide savings in small amounts for people and help them cultivate the habit of investment. It is the most basic ad popular type of instrument, and the amount can be a minimum of INR 500 to a maximum of INR 150,000. The investment amount can vary substantially and as per your choice.

You can also provide standing instructions to your desired bank to have a certain amount deducted every month or year to make it easy. You can check and maintain your PPF account online too.

Is PPF Exempt From Tax?

By investing in tax-saving instruments, you can decrease your tax burden. You can easily distinguish between tax planning and financial planning. There are several ways to save taxes, one of the most popular is PPF. PPF tax exemption is widely known for its safety and good return. An individual can claim the tax deduction in PPF under Section 80C of the Income Tax Act, 1961.

The PPF account has a maximum deposit limit of INR 150,000 every year. So, you can claim the whole 80C discount for your PPF investment. The PPF account scheme is one of the best tax-saving schemes for those who are not covered under EPF and are risk-averse investors.

Did You Know?

The interest rate of the PPF scheme is set by the Indian government. The current interest rate on the PPF account is 7.1%. Due to the PPF tax exemption, the interest earned in the PPF scheme is also tax-free under Section 80C of the Income Tax Act.

Resource: https://www.nsiindia.gov.in/InternalPage.aspx?Id_Pk=55

Benefits of PPF Beyond Tax Exemption

As we discussed PPF tax exemption, there are several other benefits of a PPF account that you should know. PPF is the best option for those who are looking for a low-risk investment. It is a long-term investment tool that helps you save a corpus for your retirement. The premiums on PPF are flexible, and the returns are high. PPF account benefits are endless, but here are the most helpful ones.

Low Risk

The PPF investment is a safe investment product. Since it is not linked to any markets and is backed by the Indian government, the PPF account has lower risks than other saving schemes. 

Nomination Facility

A PPF account can be opened by anyone. The age limit for opening a PPF account is 18 years or above. It is a significant benefit that the PPF account comes with a nomination option. So, you can add a nominee to your account. This is also known as a death benefit. If any tragic event happens to the investor, the maturity amount will be provided to the nominee.

Loan Facility

You are eligible to get a loan from the bank against a PPF account. You can get a loan facility between the 3rd and 6th years of the created account. You can also make partial withdrawals from your PPF account on completion of 5 years from the end of the year in which the account was opened. It is recommended to use this feature in case of an emergency.

Extension OF Account

The maturity time of a PPF account is 15 years from the end of the financial year in which the account was opened. At the time of maturity, the account holder can extend the lock-in period in the blocks of 5 years. The choice of extension has to be made within one year from maturity. 

High Returns

The government of India guarantees the return on PPF investment. One of the PPF account benefits is that you can also decide if you want to invest in a lump sum or monthly. A PPF account is not only affordable, but it also provides higher returns as well as financial security. The current interest rate on the PPF account is 7.1%.

Tax Benefits

Last but not least, you can also get a PPF tax exemption benefit by investing in the PPF scheme. You earn interest by investing in a PPF account that is entirely tax-free. PPF tax exemption benefit is provided to investors under Section 80C of the Income Tax Act. 1961.

Word To Remember

Section 80C: The PPF tax exemption is provided under Income tax Section 80C. The entire interest amount is tax-free. Due to this, you can receive a higher return at maturity and create good savings for your retirement.

Conclusion

PPF is for those who want long-term investment to achieve their future financial goals. It is a fact that the PPF scheme is the safest investment option compared to other saving schemes. You can maintain your PPF account without any hassles. PPF tax exemption helps you to create a good fortune for the future.

FAQs

Is PPF exempt from tax?

Yes, PPF tax exemption is available under Section 80C of the Income Tax Act, 1961.

Is it possible to open more than one PPF account?

No, you can only create one account in your name.

Who is eligible to open a PPF account?

The age limit to open a PPF account is 18 years or above.

Is PPF investment risk-free?

PPF investment is entirely risk-free as it is backed by the Indian government. The minimum amount you can invest in PPF is INR 500, and the maximum amount you can invest in PPF is INR 150,000 yearly.

Shivangi Kalra June 23, 2022
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Posted by Shivangi Kalra
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Shivangi is a writer, proofreader, and editor at Investment Simplified - she loves to multi-task and aims to offer insights through her words. She has been in the content writing profession for quite some time now and helps clients get the audience's attention with her creative hit. Writing has always played a crucial role in her life. From proofreading and editing her father's books to handling multiple commercial projects at once, she is best known for paying attention to detail and curating content that is engaging, entertaining and educational.
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