The Public Provident Fund (PPF) is one of the tax-free saving scheme. This saving scheme is famous amongst the investors who do not want to take risk. Its tax benefits make the scheme one of the most tax efficient instrument.
PPF accounts have a maturity period of 15 years, which can also be extended later on.
Taxability of PPF
- Interest earned on PPF deposits are not taxable.
- PPF maturity proceeds are all tax-free.
- Investment in PPF can be claimed as tax deduction up to 1.5 lakh under section 80C of Income tax act.
Taxability of PPF on Partial withdrawal
- We are allowed to withdraw partial amount from PPF accounts every year from the seventh financial year from the year of opening account.
- If the PPF account is extended more than the maturity of 15 years, partial withdrawals can also be made.
- Under PPF investor is not liable to pay tax at all three levels – investment, earning and withdrawal.
- All payments from PPF are free from tax under Section 10 (11).
- Investors are not bound to pay any tax on the interest portion or the principal sum received on premature closure of the PPF account.
- In case of partial withdrawal from the PPF account, the amount of withdrawal is limited to 50 per cent of the balance in the account at the end of the fourth year soon after preceding the year of withdrawal or the year immediately preceding the year of withdrawal, whichever is lower.
- A person with a PPF account can also opt for the loan facility in the third financial year, compared to the financial year in which the account was opened. A loan can be availed up to 25 per cent of the amount in the account at the end of the second year immediately preceding the year in which the loan is applied for.
- Once the PPF investor repays the first loan, he/she can take a second loan as well. This loan facility is available until the end of the fifth financial year from the end of the financial year in which first subscription was made.
Disclaimer – The above summary is based on the personal interpretation of the revised regulations, which may differ person to person. Hence, the readers are expected to take expert opinion before placing reliance on this article.
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