Public Provident Fund (PPF) is one of the government savings schemes providing assured returns along with significant tax benefits. Contributions made by taxpayers to the PPF account are tax deductible (under Section 80C of the Income Tax Act, along with LIC premia, PF contributions, etc).
Interest accrued on the cumulative balance in the investor’s PPF account is also tax-exempt. While there are certain restrictions on withdrawals, there is no tax payable on withdrawal, and hence effectively, PPF is Exempt Exempt Exempt (EEE) from a tax perspective.
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“PPF was earlier governed by the Public Provident Fund Scheme 1968 which provided for a maximum cap of Rs 1,50,000 per individual as investment limit in a financial year. The limit was raised from the previous cap of Rs 1,00,000 in August 2014. The PPF Scheme, 1968 was rescinded by the Central Government in December 2019 and the new scheme – The Public Provident Fund Scheme 2019 — was notified by virtue of powers conferred under the PPF scheme and is now governed by the Government Savings Promotion Act 1873. However, the maximum cap has been retained at Rs 150,000,” informs Saraswathi Kasturirangan, Partner, Deloitte India.
In other words, this means that you cannot deposit more than Rs 150,000 in a PPF account in a financial year. However, there is no restriction on the number of deposits and you can deposit funds in multiples of Rs 50 in your PPF accout and a minimum of Rs 500 per annum.
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PPF provides assured returns in the form of interest to investors that are tax-exempt. The rate of return is notified by the Department of Economic Affairs of the Ministry of Finance. The current rate is at 7.1%, and while the returns have been lower over the past decade from 8.8% in 2012-13, the fact that this is tax-exempt clearly means that the effective rate of return is higher. On a separate note, the fact that there is an assured tax-free return could be one of the factors influencing the annual investment limit.
“With the Union Budget 2023 around the corner, the expectation of the common taxpayer from the government is an increase in the limit under Section 80C. If that materializes, an increase in annual PPF contribution limits would also be a welcome measure,” says Kasturirangan.
