Is PPF Tax Free? Understanding Tax Benefits of Public Provident Fund

We’re all looking for ways to save tax, and one great option for a safe and long-term investment is Public Provident Fund (PPF). Why? Because it’s backed by the government, provides great interest, and is popular among both salaried and self-employed individuals.

Of course, the question then arises, is PPF tax-free? Let’s understand this in simple terms so you can invest with peace of mind.

What is PPF?

The Public Provident Fund (PPF) is a government-backed savings scheme that offers the best of both worlds: long-term savings and tax benefits. Here are some important details you should know:

• It comes with a 15-year lock-in period
• It offers a fixed rate of interest (revised quarterly by the government)
• A PPF account can be opened at any bank or post office
• Any amount between Rs. 500 to Rs. 1,50,000 can be invested per year.

Is PPF Tax Free?

Now, what everyone wants to know is, “Is PPF tax-free?” Yes, it is completely tax-free as it falls under the EEE (Exempt-Exempt Exempt) category. Here’s what this means:

• Exempt at Investment: Any amount you invest in PPF (up to Rs. 1.5 lakh a year) is eligible for deduction under Section 80C of the Income Tax Act.
• Exempt on Interest: Even the interest you earn on your PPF investment every year is tax-free and need not be included in your taxable income.
• Exempt on Withdrawal: Once the lock-in period of 15 years is over, you can withdraw the entire maturity amount with interest without any tax deductions. 

So, yes, PPF is tax-free at every stage, investment, interest, and withdrawal.

How Much Tax Benefit Does it Provide?

For instance, if you invest Rs. 1.5 Lakh a year, you can claim the full amount as a deduction under Section 80C, reducing your taxable income.

So, if you fall in the 20% income tax slab, this deduction can help you save approximately Rs. 30,000 in taxes each year. 

20% of Rs. 1.5 Lakh = Rs. 30,000 in tax

Additionally, both the interest and maturity amount are also tax-free, helping you keep every rupee you earn. 

Understanding PPF in the New Tax Regime

The government introduced the new regime to make tax calculations simpler and paperwork less cumbersome. By doing so, they lowered tax rates and removed deductions and exemptions.

Yes, this means most deductions under Section 80C , including PPF, are not available in the new regime. So, choosing the new regime means you won’t get the 80C deduction, but both your maturity amount and interest still remain tax-free.

Key Takeaways

So, in a nutshell, yes, PPF is a tax-free, safe, and long-term savings option to help you build wealth efficiently. 

Whether you’re planning your retirement, child’s education, or just want a reliable safety net for rainy days, the Public Provident Fund offers a combination of tax benefits that’s hard to beat.