Tax Treatment of Public Provident Fund (PPF)

Public Provident Fund or PPF is one of the most popular investment options in India. It is statutory scheme of the Central Government of India which came into effect in the year 1968.

Currently, the interest rate offered through PPF is around 8.8% which is compounded annually. The rate of interest is applicable for FY 2012-13 w.e.f 01-Apr-2012. It is credited to the PPF account at the end of each financial year.
Currently, PPF comes under "EEE"(Exempt, Exempt, Exempt) method of taxation — wherein it is exempted at the points of investment, interest earned is totally exempt from tax and this applies to final maturity amount as well.

How:
1. When you make investment in Public Provident Fund
The investment made in PPF account are eligible for tax deduction under Section 80C of the IT Act. The investment however is limited to a maximum of Rs.100,000/- per year per person. This limit of Rs.100,000/- includes the deposits made in the name of any dependent children.


2. When you earn Interest on your investment in PPF - Tax Free Interest
The interest earned from your Public Provident Fund is totally exempt from tax under section 10 (11) of income tax act.


3. When you withdraw your PPF on maturity - Tax Free on Maturity
Amount received on maturity of PPF is fully exempt from tax and further If you extend the period with contribution option , you can avail exemption u/s 80C. Even under the proposed direct taxes code, PPF will continue to enjoy the same tax advantage.