What is PPF? Taxability of excess PF contribution above Rs. 2.5 Lakhs

What is PPF? 
Taxability of excess PF contribution above Rs. 2.5 Lakhs

What is a PPF account?

PPF Stands for “Public Provident Fund “.

It is an investment option which not only offers attractive interest rate but also a safe mode of long-term investment.

Who is eligible to invest in PPF?

  • Any Indian citizen can open PPF a/c.
  • One citizen can have only one PPF account.
  • The second a/c can be opened if it is in the name of a minor.
  • NRIs and HUFs are not eligible to open a PPF account.

Types of PF in India?

In India, there are three types of provident funds, namely –

General Provident Fund (GPF),

Employees’ Provident Fund (EPF) and

Public Provident Fund (PPF).

   
Parameters   
   
General   Provident Fund   
   
Employees’   Provident Fund    
   
Public   Provident Fund   
   
Eligibility   
   
Government   employees   
   
Anyone working in   an organisation with more than 20 employees   
   
Any Indian citizen   
   
Maturity   
   
Until retirement   
   
Age of 58 years   
   
15 years from the   date of account creation   
   
Premature close   
   
On suspension or   resignation from government service   
   
When the account   holder is unemployed for 2 months or more   
   
Allowed after   completion of 5 years on a child’s education or medical reasons   

How to open a PPF account?

   
With Whom PPF account can be opened?    
   
Post office / Nationalised Bank / Private Banks   
   
Documents required?    
   
Duly filled application form + KYC (Identity   Proof, Address Proof)   

What is the interest rate on PPF?

   
PPF Account   
   
Details   
   
Current PPF interest rate   
   
7.10% w.e.f. 1st January, 2021   
   
Lock in period   
   
15 years   
   
Minimum Account   
   
₹ 500   
   
Tax on PPF interest   
   
Nil, tax exempted   

Various Forms in PPF

   
List of Forms   
   
Nature of the Form   
   
Form A   
   
For opening a Public   Provident Fund account   
   
Form B   
   
For making   deposits in the PPF account and repaying the loans against the PPF account   
   
Form C   
   
For partial   withdrawals from the PPF account   
   
Form D   
   
To apply for a   loan against the PPF account   
   
Form E   
   
Adding a   nominee for the PPF account   
   
Form F   
   
Changing the   nomination for the PPF account   
   
Form G   
   
For the   claiming of funds in a PPF account by a nominee or the legal heir   
   
Form H   
   
For extending   the maturity of the PPF account (1 or 5 years)   

Loan against PPF

You can get a loan from the third year and till the sixth year after opening the PPF account. The amount of loan is limited to 25% of the balance that stood in the PPF account of the person at the end of 2nd year or the year preceding the year in which loan has been applied.

A fresh loan is not allowed when a previous loan or interest is outstanding. Interest is charged at a rate of 1% if repaid within 36 months and at 6% on the outstanding loan after 36 months. The repayment may be made either in lump-sum or in Instalments.

   
Year   
   
Amount Invested   
   
Interest (assumed)   
   
1   
   
150000   
   
10650   
   
2   
   
150000   
   
10650   
   
3   
   
Loan required    

Eligible amount for Loan = 3,21,300*25/100 = 80,325

PPF withdrawal

   
Type   of Withdrawal   
   
Time   Period   
   
On   what grounds   
   
How   much?   
   
On Maturity   
   
After 15 years   
   
Any   
   
Full Amount   
   
Partial Withdrawal   
   
After 6 years   
   
Any   
   
50% of the balance   
   
Premature Closure   
   
After 5 years   
   
Medical, Education   
   
Full Amount   

Tax benefits and PPF a/c

Investors get Tax benefits on PPF Investments U/s 80C.

It is EEE category Investment. Means its Investment, Return and Maturity is exempt

New Amendment:

The Finance Bill 2021 proposes to insert Proviso to Sections 10(11) and 10(12) – “providing that the provisions of these clauses shall not apply to the interest income accrued during the previous year in the account of the person to the extent it relates to the amount or the aggregate of amounts of the contribution made by the person exceeding Rs. 2, 50,000 in a previous year on or after the 1st day of April 2021 and computed in such manner as may be prescribed”.

The same can be easily understand by following example : -

Illustration -

Mr. Z’s total contribution (including voluntary provident fund) to Employee Provident Fund (EPF) is Rs 4,50,000 in the FY 2021-22. Assuming the rate of interest on EPF is 7.1% per annum; his tax liability will be calculated in the following manner:

   
Financial Year   
   
Employee’s contribution in EPF in a   year
   
(Rs.)   

Contribution liable for tax on interest
(b- 2,50,000)

Interest on the excess contribution

(C*7.1%)
   
TDS @ 10% under section 194 A
   
(10% on d)   
   
Balance taxable amount to be added   in taxable salary (d-e)   
   
(a)   
   
(b)   
   
(c)   
   
(d)   
   
(e)   
   
(f)   
   
2021-22   
   
4,50,000   
   
2,00,000   
   
14,200   
   
1420   
   
12,780   

It is worth noting that maximum investment limit in Public Provident Fund ( PPF)  is Rs. 1.5 Lakh only .

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