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Is ppf interest, 80c deductible??

rajat (article) (26 Points)

28 January 2015

Hello friends!! we know dat ppf interest is exempt u/s 10(11).. we also know dat we dnt immediately receive it and it gets reinvested.. so the quesion is whether such reinvestment is 80c deductible.. if not what provision in IT Act prevents this?

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PRADEEP S (Finance Manager(B.Com. M.Com. M.Phil. LLB. MA. MBA. MFT. MCS. CA Inter CMA Inter)) (216 Points)
Replied 28 January 2015

Hi Rajat,

Your question is logical and valid. However IT Act 1961 does not expressly speak on automatic deduction of interest on PPF u/s 80C. May be Law maker of yesterday and till today does not touch this due to fear of loss in revenue or reduction in investment(for 80C purpose) if such deduction is made available automatically.

Regards

Pradeep S

1 Like

rajat (article) (26 Points)
Replied 28 January 2015

Yes, IT Act doesnt speak about automatic deduction.. however, at da same time it doesnt expressively stop us from doing so.. what i mean is if we can claim deduction for nsc interest, y cant we claim deduction for ppf interest.

PRADEEP S (Finance Manager(B.Com. M.Com. M.Phil. LLB. MA. MBA. MFT. MCS. CA Inter CMA Inter)) (216 Points)
Replied 29 January 2015

Hi Rajat,

Please do not forget that though Interest on NSC can be claimed as deduction U/S 80C, it is fully taxable. Meaning, if you claim U/S 80C it has to be added as an Income. Again, if it not added as an Income, at the time of Maturity the entire interest portion is taxable. This is not there in case of Interest on PPF. Interest on PPF is not at all taxable, hence it is not qualifying for deduction. Also do not forget the basic principle of taxation is that, investment U/S 80C has to be made out of funds which are taxable and investment made out of tax free income do not qualify. When Interest on PPF is made a tax free income, it is logical that it cannot be allowed as a deduction item,

Trust this clarifies your doubts.

Regards

Pradeep S

1 Like

rajat (article) (26 Points)
Replied 29 January 2015

Well mr. Sandeep i wud like to bring it to yr notice dat afta finance act 2002, words " out of his taxable income" have been dropped.. establishing dat investment u/s 80c can be made out of made out of any income, whether taxable or exempt.. i mean think about it, a fresh investment in ppf cannot just be disallowed for deduction on grounds dat its source is a dividend income which is exempt..