Public Provident Fund - Tax Exemption Explained

One of the most popular long-term investments for those saving for retirement is the Public Provident Fund. It has high interest rates and a slew of tax perks, tax exemptions, and capital security. The interest and returns earned are not taxable under the Income Tax Act. In recent years, it has become one of the most tax-saving strategies.

PPFs pay a high interest rate and come with a slew of tax advantages. PPF offers a greater interest rate than most other fixed investment programmes of similar nature. PPF investments can be made in a flat payment or over a period of up to 12 instalments. For each financial year, the lowest investment is Rs 500 and the highest is Rs 1.5 lakh. The present interest rate is 7.1 percent per year, and the PPF account has a 15-year term.

Interest income is tax-free , which implies that interest generated on the fund is tax-free. When it comes to bank deposits, the interest generated is taxed. As a result, if you are in the highest tax rate, you are likely to pay a significant amount of tax. In reality, other instruments' post-tax returns will decline considerably, making the PPF a smart investment decision when compared to other choices in the same category.

PPF offers further tax benefits under Section 80C of the Income Tax Act, in addition to tax-free interest income. This indicates that an annual investment of Rs 1.5 lakhs qualifies for tax advantages. The PPF's one drawback is that it has a 15-year duration, making it a long-term investment. You can withdraw the money after 5 years, however there will be a 1% interest charge taken from the day the account was opened.