CA Sandeep Kanoi
To increase household savings for the common man, the Budget 2014 presented by Finance Minister Arun Jaitley on 10th July 2014 hiked the PPF (Public Provident Fund) to 1.5 lakh per annum from existing Rs. 1 Lakh Per Annum. Investment in PPF qualifies for deduction under section 80C and Similarly investment limit under 80c has also been hiked by Rs 50,000 to Rs 1.5 lakh. Increase in PPF Limit been notified wef 20.08.2013 – Finmin Notifies revised PPF Investment limit of Rs. 1,50,000/–
The public provident fund is established by the central government. One can voluntarily open an account with any nationalized bank,selected authorized private bank or post office. The account can be opened in the name of individuals including minor.
The minimum amount is Rs.500 which can be deposited. The rate of interest at present is 8.7% per annum, which is also tax-free. The entire balance can be withdrawn on maturity. Interest received is tax free. The maximum amount which can be deposited every year now is Rs. 1,50,000 in an account. The interest earned on the PPF subscription is compounded. All the balance that accumulates over time is exempt from wealth tax. Moreover, it has low risk – risk attached is Government risk. PPF is available at post offices and banks.
Tax Benefit from Investment in PPF
Interest earned is fully exempted from tax without any limit. Annual contributions qualify for tax rebate under Section 80C of income tax. Contributions to PPF accounts of the spouse and children are also eligible for tax deduction. Balance in PPF account is not subject to attachment under any order or decree of court. But, Income Tax authorities can attach the account for recovering tax dues. The highest amount that can be deposited is 1,50,000 (please note that the limit has been increased from 1,00,000 to 1,50,000 in 2014-15 budget and the circular has been issued on 20th August 2014) Tax bracket for PPF is EEE (i.e. Exempt,Exempt,Exempt). So contribution is exempted under 80C, Interest earned is tax exempted and withdrawal is also tax exempted
One can withdraw the investment made in 1st year only in 7th year. However, loan against investment is available from 3rd financial year.