Public provident fund or as popularly known as PPF, is a secured long term investment option backed by the Government of India. In this article we will be discussing tax deduction under section 80C for the contribution to Public provident fund.
From tax point of view, PPF falls under the Exempt-Exempt-Exempt (EEE) category. This means, periodic contribution to Public Provident Fund account, interest earned and maturity proceeds from PPF, all are tax free.
Contribution to public provident fund has been listed in section 80C of the Income tax Act, 1961, as one of the investment option to get eligible for tax deduction.
For this reason, contribution to public provident fund (PPF) can be claimed as tax deduction from assessee’s gross total income up to a maximum limit as specified under section 80C. For the financial year 2021-22 (assessment year 2022-23) the maximum limit specified under section 80C is 1,50,000 rupees.
As discussed above, interest earned during the financial year from your PPF account is exempted from tax.
Employee has to submit a copy of the public provident fund account to their employer as a proof of all the contributions eligible for tax deduction. If employer considered contribution to PPF as a tax deduction, employee will end up paying less tax.
Tax deductions not considered by the employer can be claimed as a deduction from gross total income while filing tax return. Self employed persons can claim similar tax deduction under section 80C for their contribution to PPF, exemption for interest earned from the PPF account and withdrawals if any. They can claim these tax benefits while filing their Income tax return.
Relevant points related to public provident fund Investment
- PPF account can be opened by a resident individual with any nationalized or private banks like the State Bank of India, ICICI, HDFC, AXIS and Punjab National Bank or a Post Office. It cannot be opened in a joint name.
- Account can be opened with Rs. 100. Annual minimum investment amount to a public provident fund account is Rs.500 and the maximum limit is Rs. 1,50,000.
- PPF account has lock-in period of 15 years. However, it can further be extended in blocks of 5 years.
- Partial withdrawals are allowed only after 7 years.
- Deposit can be either by way of cash, cheque, demand draft or online fund transfer. Mode of payment will not decide eligibility of tax deduction.
- PPF account can be closed upon maturity i.e. after completion of 15 years.
- Interest at the time of maturity is not taxable in India.
- Partial withdrawal is possible only after completion of 6 years i.e. from 7th year onwards.
- Premature closure of Public Provident Fund account is allowed only under certain specific conditions i.e. situation like for medical treatment, higher education
- One individual can have only one PPF account in his or her name. If it’s detected that you have more than one account, then all other account will be closed and principal amount contributed will be refunded without interest.
- Loan facility is available from the third financial year onwards.
