In this article, we will discuss the effects of PPF in new tax regime and how it can affect your tax, savings, and investments. After introducing New Tax Regime in Budget 2023, many investors are unsure whether Public Provident Fund (PPF) is still a good investment choice for the new tax regime.
Understanding the PPF in New Tax Regime
The old and new tax regimes are both options available to taxpayers under the new tax regime implemented in F.Y. 2023-2024. When determining their taxable income under the previous tax regime, taxpayers may take advantage of several deductions and exemptions, which reduce their tax burden. The new tax regime offers lower tax rates but does not permit the majority of the deductions and exemptions which were allowed under the previous tax regime.
PPF and the New Tax Regime
The tax exemption on the investment amount and interest income received is one of the essential advantages of investing in PPF. By Section 80C of the Income Tax Act, investments made in PPF were formerly entitled to a deduction of up to Rs. 1.5 lakh. Additionally, the interest earned on PPF is also tax-free.
The tax exemption previously offered on the investment amount and the interest received on PPF has been removed under the new tax regime. As a result, investments made in PPF will not qualify as Section 80C tax deductions, and the interest earned on PPF will be taxable.
Impact on Your Investments under New Tax Regime
The new tax regime will impact your PPF investments depending on your tax level and investment horizon. The tax obligation on the interest earned on PPF will dramatically rise if you are in a higher tax category. The effect, however, could not be felt if you are in a lower tax band and have a longer investment horizon.
It’s also crucial to remember that PPF has a lock-in duration of 15 years and is a long-term investing choice. Before making any selections, consider your investment horizon and tax liabilities if you want to invest in PPF.
Alternatives to PPF in New Tax Regime
If you are not willing to invest in PPF under the new tax regime, there are several other investment options available that can offer similar benefits. Some of these options include National Savings Certificate (NSC), Tax-Saving Fixed Deposits (FDs), and Equity-Linked Saving Scheme (ELSS).
Conclusion
The new tax regime has changed the tax implications of investing in PPF. The investment in PPF is still a good idea for some taxpayers, but better choices may exist. If you are planning to invest in PPF, it’s essential to consider your tax liability and investment horizon before making any decisions. Moreover, exploring other investment options that can offer similar benefits is crucial.
FAQs
- Is investing in PPF in new tax regime still beneficial?
- The impact of the new tax regime on your PPF investment depends on your tax bracket and investment horizon. If you fall under the higher tax bracket, the tax liability on the interest earned on PPF will increase significantly. On the other hand, if you are in the lower tax bracket and have a longer investment horizon, the impact may be insignificant.
- Are there any tax benefits available on PPF in new tax regime?
- No, the tax exemption available on the investment amount and the interest earned on PPF has been withdrawn under the new tax regime.
- What are the alternatives to PPF in new tax regime?
- Some of the investment options available under the new tax regime include National Savings Certificate (NSC), Tax-Saving Fixed Deposits (FDs), and Equity-Linked Investments.
- What types of exemptions are permitted under the new tax regime?
- The new tax regime permits exemptions for voluntary retirement, gratuity, and leave encashment, in addition to deductions for interest on let-out property under section 24(b) and NPS contributions under section 80CCD(2).
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