It’s best to kick off your tax-saving investments under the old tax regime right at the beginning of the financial year. But a lot of folks in the old regime tend to procrastinate and wait until the last minute to make those investments. This often leads to locking their money into options that they might regret later on.
For example, many people rush to buy low-yield insurance policies just to meet their tax-saving goals at the last second. Remember, the deadline for tax-saving investments for FY 2024-25 is March 31, 2025.
As that date gets closer, let’s take a look at how the Public Provident Fund (PPF) can be a solid last-minute tax-saving choice. If you’ve switched to the new tax regime, you can relax since tax-saving investments aren’t a concern for you. PPF guarantees returns and is completely tax-free. You might be curious about what that entails. Let’s break it down by exploring three stages of an investment’s journey.
When you put your money into any asset, keep in mind that the amount you invest isn’t tax-free unless it qualifies for deductions under different sections of the Income-tax Act, 1961. For PPF, you can deduct investments up to ₹1.5 lakh in a financial year under section 80C.
Next up, the interest you earn on your investments usually gets taxed, like with fixed deposits and recurring deposits. But with PPF, the interest you earn is tax-free.
Also, in many situations, like with mutual funds, the money you take out at maturity can be taxed at special or slab rates. But again, PPF doesn’t have that tax burden.
So, PPF stands out as a tax-free option throughout your investment journey, making it a solid choice for tax-saving, especially for those sticking to the old tax regime.
Is it a good last-minute tax-saving strategy? While PPF does offer a nice interest rate (currently at 7.1%) and great tax benefits, remember that your money will be tied up for a long 15 years.
So, if you’re okay with that long lock-in period, it could work as a last-minute tax-saving option. But if you prefer to keep your funds more accessible, you might want to explore other options with shorter lock-in times, like an equity-linked savings scheme (ELSS), which only locks your money for 3 years.