The Public Provident Fund (PPF) is one of India’s most trusted long-term investment options, offering guaranteed returns, tax benefits, and financial security. For decades, it has been a go-to savings instrument for individuals seeking risk-free investment and tax-saving benefits. However, with the introduction of the new tax regime under Section 115BAC, which eliminates various deductions, the attractiveness of PPF as a tax-saving tool has come into question.
In this blog, we will explore:
- PPF investment and its features
- Comparison of PPF benefits under the old and new tax regimes
- Pros and cons of investing in PPF
- Which tax regime is better for PPF investors?
What is the Public Provident Fund (PPF)?
The Public Provident Fund (PPF) is a government-backed savings scheme designed to promote long-term savings and wealth creation. It is particularly popular among investors looking for secure and tax-efficient investment options.
Key Features of PPF
- Tenure: 15 years (extendable in blocks of 5 years).
- Investment Limit: Minimum ₹500 and maximum ₹1.5 lakh per year.
- Interest Rate: Revised quarterly by the government (currently around 7.1% per annum).
- Tax Benefits: Falls under the Exempt-Exempt-Exempt (EEE) category, meaning:
- Investments are eligible for tax deduction under Section 80C (up to ₹1.5 lakh per year).
- Interest earned is tax-free.
- Maturity proceeds are tax-free.
- Liquidity:
- Partial withdrawals allowed after 6 years.
- Loan facility available between the 3rd and 6th year.
Due to its risk-free nature and tax advantages, PPF is often recommended for long-term savings, retirement planning, and financial security.
PPF in the Old vs. New Tax Regime
With the introduction of the new tax regime, taxpayers now have the option to choose between:
- Old tax regime – which allows deductions and exemptions, including tax benefits on PPF investments.
- New tax regime – which offers lower tax rates but eliminates most deductions, including Section 80C benefits on PPF.
PPF Under the Old Tax Regime
The old tax regime allows taxpayers to claim PPF contributions as a deduction under Section 80C (up to ₹1.5 lakh per year), effectively reducing their taxable income. This makes PPF a powerful tax-saving tool for those who fall under higher income tax slabs.
Additionally, the interest earned and maturity amount remain completely tax-free, making PPF an attractive option for wealth creation without any tax liability.
PPF Under the New Tax Regime
Under the new tax regime, taxpayers cannot claim deductions under Section 80C, which means that PPF investments will no longer provide an immediate tax-saving benefit.
However, the interest earned and maturity proceeds remain tax-free, ensuring that investors still benefit from compounding returns without any tax deductions on their final corpus.
Key Differences Between the Old and New Tax Regimes for PPF Investors
| Feature | Old Tax Regime | New Tax Regime |
| 80C Deduction on Investment | ✅ Available (up to ₹1.5 lakh) | ❌ Not Available |
| Interest Earned | ✅ Tax-Free | ✅ Tax-Free |
| Maturity Amount | ✅ Tax-Free | ✅ Tax-Free |
| Applicability | Suitable for those who benefit from deductions | Suitable for those who prefer lower tax rates without deductions |
Pros and Cons of PPF Investment
Pros of PPF Investment
✅ Tax-Free Earnings: The principal, interest, and maturity proceeds are tax-free, ensuring maximum returns.
✅ Risk-Free and Secure: PPF is government-backed, making it one of the safest investment options.
✅ Disciplined Long-Term Savings: Encourages consistent savings due to the 15-year lock-in period.
✅ Stable Returns: PPF offers better returns than fixed deposits after tax, making it an attractive choice for conservative investors.
✅ Retirement Planning Tool: Provides a steady corpus for post-retirement life, as it can be extended beyond 15 years.
Cons of PPF Investment
❌ No Liquidity in the Short Term: The 15-year lock-in period makes it less flexible than other investment options.
❌ Limited Investment Amount: The maximum investment is capped at ₹1.5 lakh per year, restricting high-net-worth investors.
❌ No 80C Benefit Under New Regime: Under the new tax regime, PPF loses its tax-saving advantage, making it less attractive for tax-conscious investors.
❌ Lower Returns Compared to Market Investments: Compared to mutual funds, stocks, or ELSS, PPF offers moderate returns, which may not be suitable for aggressive wealth creation.
Which Tax Regime is Better for PPF Investors?
When to Choose the Old Tax Regime
✔️ If you actively invest in tax-saving instruments like PPF, ELSS, and life insurance.
✔️ If your total tax deductions exceed ₹1.5 lakh, making the old regime more tax-efficient.
✔️ If you prefer long-term, stable investments with tax-free returns.
✔️ If you fall into higher tax slabs, where deductions significantly reduce taxable income.
When to Choose the New Tax Regime
✔️ If you do not claim many deductions and prefer a simpler, lower tax rate structure.
✔️ If you invest in market-linked instruments (like equity mutual funds) rather than tax-saving options.
✔️ If you are a young investor focusing on high returns over long-term tax savings.
✔️ If your employer’s salary structure provides higher take-home income under the new tax regime.
Conclusion: Should You Invest in PPF Under the New Tax Regime?
PPF remains an excellent long-term savings tool, offering risk-free, tax-free returns. However, its attractiveness as a tax-saving instrument is reduced under the new tax regime, as Section 80C benefits are not available.
If you are considering investing in PPF, here’s what you should do:
- If you opt for the old tax regime, PPF continues to be one of the best tax-saving investments.
- If you choose the new tax regime, PPF remains a safe investment but does not provide any tax deduction benefits.
Final Thought:
For those focused on stable, long-term, and tax-free returns, PPF remains a valuable investment option, especially under the old tax regime. However, if you prioritize higher post-tax income and flexibility, exploring other investment options may be a better strategy.
Ultimately, the right choice depends on your tax liability, financial goals, and investment strategy.