If you're confused about whether your PPF deposits are eligible for tax exemption or not, this article is for you.
Public Provident Fund (PPF) is a long-term savings scheme by the Indian government. It was introduced in 1968 by the Reserve Bank of India and is managed by the post office. PPF accounts can be opened at any post office or branch of public sector banks like SBI, PNB, etc. This blog discusses about PPF Deposit Rebate and about PPF in general.
The main objective behind this scheme is to encourage people to save for their future and help them secure their hard-earned money against inflation. The interest rates offered on PPF accounts are very attractive as compared to other saving schemes available in India. This makes it one of the most popular investment options among Indians, especially senior citizens.
What Makes PPF a Darling for Tax Saving Investors?
PPF (Public Provident Fund) is considered a darling for tax-saving investors due to several reasons:
Tax-Free Deposit: The amount deposited in a PPF account qualifies for a deduction under Section 80C of the Income Tax Act. The maximum deduction limit is Rs. 1.5 lakh per financial year, and this amount is tax-free.
Tax-Free Returns: The interest earned on the PPF account is tax-free. The current interest rate is determined by the government and is typically higher than other fixed-income instruments.
Tax-Free Withdrawal and Maturity Benefit: The amount withdrawn from a PPF account, whether partially or completely, is tax-free. Additionally, the maturity amount received after 15 years is also tax-free.
What is PPF Account?
A PPF account is a long-term savings instrument offered by the government of India. It is a government-backed investment scheme aimed at providing individuals with a safe and secure investment option.
PPF Interest Rate
The PPF interest rate is determined by the government and is subject to periodic revisions. Currently, the interest rate is 7.1% per annum (as of July 2023), compounded annually.
Who Can Open a PPF Account?
Any Indian resident can open a PPF account. It can be opened in the name of an individual or on behalf of a minor. Non-resident Indians (NRIs) and HUFs are not eligible to open a new PPF account.
Features of PPF You Should Know
Some important features of PPF are,
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- a lock-in period of 15 years,
- a minimum annual deposit requirement of Rs. 500,
- option to extend the account in blocks of 5 years after maturity, and
- the ability to avail of loans against the PPF balance.
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PPF Account Withdrawal Rules Before Maturity
Partial withdrawals from a PPF account can be made after the completion of 5 years, subject to certain conditions. The maximum amount that can be withdrawn is limited to 50% of the balance at the end of the fourth year preceding the year of withdrawal.
What Are the Benefits of PPF?
PPF is a popular investment option for many and there are several reasons for it. PPF provides many benefits that suit the needs of the citizens of India.
Here is a list of benefits of investing in PPF.
- The amount an individual invests in their PPF account is exempted from Tax under section 80C of the Income Tax Act of 1961.
- Investing in PPF is a risk-free way as the interest rates are definite.
- PPF investment is reliable as government authorities manage the entire procedure.
- The maturity amount that an individual gets after the tenure of PPF is also exempted from tax.
- This means that the interest an individual gets on the invested money is completely owned by them and no tax is deducted from it.
- PPF investment is a good way to save money as well as invest so that it can be used for multiple purposes in the future, especially for senior citizens after retirement.
- PPF allows partial withdrawals after 7 years of starting the PPF account. This money can be used for medical or educational purposes.
- PPF also allows the account holder to take a loan on the PPF deposits. Up to 25% of the total deposit can be taken as a loan after 2 years of starting a PPF account. The interest rate on the loan taken is 2% higher than the interest benefits given on the PPF investment.
This type of flexible investment option makes the investor more comfortable in depositing the money as they have the option to withdraw amounts when needed. This is the reason for the popularity of PPF as an investment method. Return on PPF investment can be calculated using the PPF calculator provided by Vakilsearch. It is an easy method to know what the maturity amount and returns would be on the investment you make in the PPF.
What Are Online and Offline PPF Deposits?
PPF deposits are the amount of money that is invested in the PPF account by an individual. The money deposited can be given in installments or as a lump sum every financial year. If an individual decides to deposit the money once every financial year they are suggested to do so before the 5th of April of each year. In the case of the installment method of PPF deposit, it is suggested to deposit the money before the 5th of each month.
PPF deposits can be made online or offline.
- One condition to make online PPF deposits is that your savings account should be linked with the bank in which your PPF account is present.
- To make offline PPF deposits you have to use either cash or a cheque. To pay via cash you need to fill out a slip in which details such as the account number and deposit amount etc are filled. The payment is being made via cheque. The cheque can be deposited in the bank in which the person has a PPF account.
In both types of PPF deposits, the PPF account holder enjoys interest benefits as well as tax exemption on the deposited amount. The amount received as a maturity amount is also free from tax. If you wish to calculate your returns on PPF investment you can use the PPF calculator provided by Vakilsearch. You only have to enter the basic details such as the amount you invest in PPF each financial year, the rate of interest, and the tenure. After providing the required information you will get the expected return amount.
Do Both Types of PPF Deposits Qualify for Rebates in Income Tax?
A public provident fund allows tax exemption on the money invested by an individual. These are called rebates in income tax. It does not matter whether the money deposited in the PPF account was done by online or offline method full stop as long as it fulfills certain criteria tax exemption is applicable.
Here is the list of conditions for rebates in tax.
- The Amount deposited in the PPF account in each financial year must not exceed ₹1.5 lakhs. The amount of money deposited above ₹1.5 lakhs will not be exempted from tax.
- The maximum number of installments that can be deposited in a financial year is 12.
- An individual can also deposit the amount as a lump sum.
- The person opening the PPF account must be a citizen of India.
- NRIs are not allowed to open PPF accounts.
The above rules are made by the government to ensure that the PPF benefits are fully enjoyed by the citizens of India. These rules ensure that the benefits of PPF Investments are beneficial for all. Rebate income tax does not depend upon the mode of PPF amount deposits. If an individual is eligible to open a PPF account and is depositing the investment on time they are eligible for tax exemption.
Conclusion
A public provident fund or PPF is a beneficiary investment scheme. It gives the account holder tax exemptions as well as interest on the deposited amount. PPF is popular among employees as it allows partial withdrawals as well as loans. The minimum tenure of PPF is 15 years, which can be extended in blocks of 5 years.
In this article, we talked about whether the tax exemptions will be affected by the mode of payment used while depositing the PPF amount. Whether you make the payment online or offline mode, a rebate in income tax will be applicable if you are eligible for it.
If you want to manage your finances and calculate the amount of investment you need to make into PPF accounts you can use a PPF calculator. Vakilsearch has an online PPF calculator that calculates the returns you will get on the investment made in your PPF account.
FAQs
Is there tax rebate on PPF?
Yes, contributions made to a PPF account are eligible for a PPF Deposit Rebate under Section 80C of the Income Tax Act.
How much will I get after 15 years in PPF?
The maturity amount in a PPF account depends on the amount deposited, the prevailing interest rate, and the compounding effect. Online calculators can provide an estimate based on these factors.
Does PPF come under 80CCD?
No, PPF does not come under Section 80CCD. It falls under Section 80C for tax purposes.
How much deposit in PPF is taxable?
Deposits made in a PPF account are not taxable. They are eligible for deduction under Section 80C.
Is PPF allowed in 80C or 80CCC?
PPF falls under Section 80C for claiming deductions, not under Section 80CCC.
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