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Tax savings you get when you invest in PPF

  • Highlights

  • Public Provident Fund comes with triple tax benefits

  • Tax deduction limit for PPF is Rs. 1.5 lakh

  • Mention your PPF contributions in your ITR

  • Factor your tax slab to invest rightly in PPF

Public Provident Fund or PPF is a government-backed social security scheme that has stood the test of time. Not only does it give you assured returns on maturity, but it also gives you tax benefits. Find out what these are and what you should do to avail of these tax concessions.

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What contributions to PPF are eligible for tax deductions?

When you open a PPF account, the contributions you make towards it every year are eligible for tax deductions. You can claim deductions of up to Rs.1,50,000 under Section 80C of the Income Tax Act. In addition to this tax concession, since Public Provident Fund comes under the EEE (exempt, exempt, exempt) category the interest amount accrued and the maturity amount due is also tax-exempt. Wealth tax is also waived on PPF accounts.

How taxation on PPF works

Let us say, you want to put aside a considerable sum in tax savings by investing in Public Provident Fund. Now if you happen to fall under the 30% tax slab then you must invest Rs. 27,000 annually. While it will go up to Rs. 40,000 if you fall in the 20% tax bracket and if you fall in the 5% bracket, an annual amount of Rs.1,50,000 will be a must.

The above example is assuming that you have not exhausted your 80C deduction privileges by exceeding the Rs.1.5 lakh limit. Thus, first based on your income determine your tax slab, then deduce the amount you have already invested or paid as expenses that are covered within Section 80C.

Now subtract the total of this from your total taxable income to see how much is left over from the Rs.1,50,000 maximum cap. This figure is the amount you can still put in your PPF in a year to save taxes. You can go above this limit and save more. It will help you get the interest benefit, but will not allow you to claim more deduction.

How you can claim deductions on PPF investments

In order to be eligible for tax deductions for the contributions you have made to your PPF account every year you have to submit a proof of it while filing your tax returns. In the Income Tax Return forms, namely Form 16, there is a slot listed separately for 80C deductions. Here you can enter the amount you contributed in PF to claim your tax concession.

Another important thing to remember here is even if you open two separate accounts, say one in your spouse’s name and one in yours the total tax deduction allowed cannot exceed Rs.1,50,000 per financial year. In this case you can also include PPF accounts you open on behalf of your minor children.

Once you plan the amount that you need to save in PPF annually based on your tax slab, just make sure you are able to do it at least once a year or split it into monthly obligations. This will give you enough time to make your due yearly contributions and will ensure it allows you to claim your full tax deductions to save tax judiciously.

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