The Public Provident Fund (PPF) has long been a favorite investment option due to its tax-free benefits. However, there are key differences in tax treatment under the new and old tax regimes that taxpayers should be aware of.
PPF in the New Tax Regime
Under the new tax regime, individuals cannot claim a tax deduction of up to ₹1.5 lakh per year under Section 80C for the amount invested in their PPF account. This is a major shift from the old tax regime, where such deductions were allowed.
Despite this change, the interest earned on the PPF account and the maturity amount remain completely tax-free under the new tax regime, making it an attractive investment option for long-term savers.
PPF in the Old Tax Regime
The old tax regime allows investors to claim a deduction of up to ₹1.5 lakh under Section 80C for PPF investments. This section covers various tax-saving schemes, making PPF a preferred choice for those looking to reduce their taxable income. Similar to the new regime, the interest earned and the final maturity amount are also tax-free.
PPF: A Reliable Long-Term Investment
Beyond tax benefits, PPF serves as a secure long-term savings option with guaranteed returns. Since the maturity amount is tax-free under both tax regimes, the effective returns are higher than the nominal interest rate. This makes PPF a valuable investment tool, even for those opting for the new tax regime.
Current PPF Interest Rate and Returns
At present, the PPF account offers an interest rate of 7.1% per annum, compounded annually. Investors can deposit up to ₹1.5 lakh per year, and the scheme matures after 15 years. Based on PPF calculations, an annual investment of ₹1.5 lakh can grow into a tax-free maturity amount of approximately ₹40.68 lakh after 15 years.
Should You Invest in PPF?
The decision to invest in PPF depends on an individual’s financial goals. While it no longer provides tax deductions under the new regime, its tax-free maturity benefits and secure returns continue to make it a strong option for long-term financial planning.
