PPF is considered to be the safest government backed tax saver investment. So the question lies, if PPF really is tax free? This is one topic which is the most asked by individuals. Also, are premature withdrawals from PPF account taxable?
All classes are covered under the PPF scheme including salaried & non salaried class. Investment in PPF can really be such that benefits salaried as well as non-salaried resident individuals. Although, to invest in PPF as against Provident Fund (PF), is for salaried people only. A PPF account can be opened both in a post office or a bank and can be transferred also. A PPF account can be opened in a nearly post office or bank whenever required.
PPF has a lock in period of 15 years which begins with the financial year. The interest rates are revised almost every year and typically around 8% or so. PPF interest returns are compounded annually. This precisely means that interest will be earned on the 2nd year principle and first year’s interest too. Only a sum of Rs500 is required to keep your PPF account alive and running for a tenure of 15 years. However, the maximum to be invested into the account during a financial year is only Rs 150,000.
The PPF tax benefits in the year 2018 stays unchanged with the tax-friendly saving instruments. It is categorized into EEE (Exempt Investment, Exempt Return, Exempt Maturity or Withdrawal). To simplify it, a tax deduction under sector 80C of the IT Act, 1941, for the sum deposited into the PPF account. Along with that is the interest amount which will also be tax exempt. Also, the maturity value will also be tax exempt.
All premature withdrawals are done subject to the applicable rules and regulations. Not more than 50% of the amount can be extracted at the end of the 4th year preceding the year in which the amount is withdrawn or the end of the preceding year, whichever is lower.
The saving and investment schemes like PPF grabs attention of the small investors for good returns and easy withdrawals!