Investment in Public Provident Fund – Optional or Trump Card

Bibliometric Details: Issue No: 7 | Issue Month:July | Issue Year:2022

Every individual aims an investment that provides double digit return and which carries Minimal risk. With a constant selling pressure from Foreign Institution Investors (FII) since last October it has sown the seeds of volatility in Indian Markets. We have also seen a sharp fall in global indices turning their 3years & 5years rate of return in red. In this scenario whether investment is Public Provident Fund can be used as Trump Card; what is the covered advantage.

Starting with general perception, Investment in Public Provident Fund (PPF) is always been alternative for taxpayer who wants to reduce their taxable income and people who are planning for their retirement fund. The rate of return on PPF Investment post pandemic has been reduced to around 7% per annum which is just sufficient enough to cover inflation rate. Though the rate of return is more than investment made in fixed deposit/recurring deposit, it is far behind the rate offered by mutual funds. The tenure of Investment in PPF is also a bottleneck for Investors eyeing for short term investment opportunity. Furthermore, the Investment amount is been limited to Rupees One Lac Fifty Thousand (Rs. 1,50,000/-) is unfavorable path for large Investors.

If above mentioned both bottlenecks are neglected and we move on to the other side of table for average investors; What if in long term, investment in PPF generates return equivalent rate of return which is provided by most of Mutual funds?

The answer will be affirmative. Investment in PPF provides tax benefit while investing & the interest income earned on PPF is exempted from taxability along with maturity amount received at the end of tenure. Due to this real rate of return generated from Tax Saving (Approx. 10% p.a.) and Exempted Income (Approx. 7% p.a.) which will be equivalent to after tax return provided by mutual funds i.e., Approx. 18-20% p.a.

Worth noting point in above is investment in Mutual Funds is subject to market risk and rate of return is not fixed whereas PPF is government backed saving instrument, i.e., carries no risk & provides guaranteed returns. Unfolding one of the significant advantages, investment in PPF is always protected from attachment by court. As per Rule – 15 of Public Provident Fund Scheme, 2019, Investment in PPF enjoys the protection from attachment – It has been clarified that “Amount standing to the credit of any account holder shall not be liable to attachment under any order or decree of any the court in respect of any debt or liability incurred by the account holder.”

After referring this rule, there is still big question mark that whether Income Tax or Enforcement Directorate can attach balance in lying PPF account. In 2014, it was held by Hon’ble Gujarat High Court in case of Dineshchandra Bhailalbhai Gandhi VS. TRO that deposits in PPF Account are immune from attachment for recovery of tax dues and Rule 10 of Schedule II of the I-T Act exempts all such properties from attachment or sale.

The same was upheld in case of Jignesh Bhajiyawala in 2018 where again were Gujarat High Court quashed Income Tax Department move to attach PPF accounts. It also clarified that the agency cannot attach his Public Provident Fund account as these accounts gets protection under section 9 of the Public Provident Fund Act, 1968. From above Investors can make a rational choice that whether PPF can be used as Trump card. “Investments are virtual hands, that works round the clock”.

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