Public Provident Fund (PPF)

Investment in PPF is by far one of the most important areas of investment for individuals and HUFs, particularly to take advantage of the tax rebate under Section 88 of the I.T. Act 1961. The first most important advantage attached to the investment in PPF is that the entire income is completely exempt from income tax as per provisions contained in section 10 of the I.T Act 1961. 

There is also no wealth tax on the investment in PPF Account together with other qualified assets is entitled to tax deduction under section 80C of the I.T , Act 1961. The maximum amount which can be contributed during the year is Rs. 70,000 (with other specied assets). 

Personal who are not in need of funds immediately, for whom liquidity is not a point to be considered for making investments, for such individuals and HUFs the investment in PPF is really a very good mode of investment. However it may be remembered here that loan can be taken from PPF account after the third year onwards and this loan carries an interest of 1% p.a. over and above the interest available on PPF account. 

From the point of view from tax planning it is worthwhile making investment in the PPF account in the name of the minor children, taking benefit of Section 80C, by the father or the mother, and thereafter making a gift of the PPF account to the minor child. In this scheme the provision of clubbing would not be attracted at all because of the fact that the PPF account interest income is completely exempt from income tax and later, when the money from PPF is received, the minor child who has been gifted away with the PPF account money is a major. 

Hence the provision would not apply relating to clubbing of income or wealth. The entire wealth in the form of PPF account is completely exempt from wealth tax. Tax deduction even on contribution in the name of a child and spouse is also permissible. 

The total amount of investment in PPF in the name of the individual inclusive of the investment in the name of the minor children during a financial year is Rs 70,000. The entire interest income from a PPF account is tax free under Section 10(11) of the Income Tax 1961.

The PPF account can be opened in a Post Office or with State Bank of India. Once the account is opened, a minimum sum of Rs 500 has to be deposited per annum. The duration of PPF account is 15 Years. After the expiry of 15 years , the PPF account can be extended by 5 years –block. 

The investment in the PPF account together with other eligible investment is entitled to tax deduction under Section 80C of the investment.