What makes PPF a darling for tax saving investors: Explained (2024)

Tax free deposit

The Public Provident Fund Account (PPF) has a 15-year term, making it an appropriate savings plan for long-term investors, particularly those planning for retirement or the marriage of a girl child. A PPF account can be opened with a minimum deposit of ₹500 and a maximum amount of ₹1,50,000 every financial year. Only one account can be opened with any post office or bank by a single adult who is a resident Indian or a guardian on behalf of a minor or person of unsound mind. PPF account holders can receive tax benefits under section 80C on deposits up to ₹1.5 lakh, allowing tax-saving investors with low tax regimes to benefit from PPF.

Tax free returns

The interest rate on PPF is 7.1 per cent per year, compounded annually, and is calculated on the lowest amount in the account between the closing of the fifth day and the end of the month in a financial year, so you need to make a deposit in your PPF account every month before 5th of every month. Interest will be credited to the account at the conclusion of each financial year because the interest rate is compounded annually. Although interest earned is tax-free under the Income Tax Act, the accumulated amount and interest are also tax-free.

Tax free withdrawal and maturity benefit

PPF accounts have a 15-year maturity tenor, and upon maturity, one can withdraw the maturity amount, maintain the maturity amount in the account without depositing, and the PPF interest rate will apply or one can extend his/her account for another block of five years, and so on. When it comes to withdrawals, a customer can make one withdrawal after five years of account opening, and the withdrawal can be made up to 50% of the total balance at the end of the fourth preceding year or the end of the preceding year, whichever is lower. Section 80C of the Income Tax Act exempts full or partial withdrawals from a PPF account from taxation, which makes another reason to invest in a PPF account for those who are looking forward to EEE tax benefits. Because the amount invested in the scheme is tax-exempt up to ₹1.5 lakh every fiscal year, interest received is tax-free, and the maturity benefits are also tax-free, PPF is a popular tax-saving option that comes with Exempt Exempt Exempt (EEE) tax-saving status for long term.

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Published: 05 Jun 2022, 01:57 PM IST