Tax Benefits of Investing in PPF
1. Tax Deduction under Section 80C: Contributions made to a PPF account are eligible for a tax deduction under Section 80C of the Income Tax Act, 1961. Investors can claim a deduction of up to ₹1.5 lakh in a financial year for the amount invested in their PPF account. This deduction is available for both individual taxpayers and Hindu Undivided Families (HUFs).
2. Tax-Free Interest: The interest earned on the investment in a PPF account is exempt from tax. The interest is compounded annually and credited to the account at the end of each financial year. This tax-free compounding helps in the accumulation of wealth over the long term.
3. Tax-Free Maturity Proceeds: The maturity proceeds, including the principal amount and accumulated interest, are entirely tax-free. When the PPF account completes its maturity period of 15 years, the investor can withdraw the entire balance without any tax liability.
4. No Wealth Tax: The balance in a PPF account is not considered for the calculation of wealth tax. This means that the amount invested in a PPF account and the accumulated balance over the years are exempt from wealth tax.
5. No Capital Gains Tax: Since PPF investments are considered as debt instruments, there is no capital gains tax applicable at the time of withdrawal. Whether the investor withdraws the entire amount or makes partial withdrawals during the tenure, there is no capital gains tax liability.
6. Nominee Benefits: In the unfortunate event of the investor’s demise, the nominee(s) of the PPF account can claim the maturity proceeds without any tax liability. The tax benefits associated with the PPF investment extend to the nominee(s) as well.
7. Loan Facility without Tax Implications: Investors can avail of loans against their PPF accounts from the 3rd financial year up to the 6th financial year. The loan amount is tax-free and can be utilized for various purposes without any tax implications.