Tax Free PPF interest above Rs 5000, which form

POSTED BY Bunker ON July 16, 2013 10:57 am COMMENTS (15)

Hi,
PPF interest received during the financial year is tax free. However, some forums on wealth18.com confirm that tax-free PPF interest needs to be declared in ITR-2 form if the same is above Rs 5000.

Is this true? Why would some tax collection agency want to know tax-free PPF interest you receive every year? What clue do they get from that interest? Better they take the PPF balance every year than knowing the interest.

If yes for declaring such interest, where to declare PPF interest on ITR-2?

15 replies on this article “Tax Free PPF interest above Rs 5000, which form”

  1. KRISHNA says:

    SIR, WHERE SHOULD I FILL INTEREST ON PPF IN ITR 7

  2. Bunker says:

    Another question is which bank accounts should be declared in the ITR return for AY 2015-16 ?

    Types of Bank Accounts in India a taxpayer maybe holding:
    a) Current
    b) Savings
    c) PPF
    d) NRO
    e) NRE
    f) RFC (Resident Foreign Currency)
    g) FCNR (D)

    ITR form has dropdown only for SAVINGS and CURRENT. Which ones to declare in ITR?

    1. All the bank accounts which are in the account holders name should be declared

  3. Virendra says:

    “(ii) The details may be filled on cash basis unless there is any provision/ requirement to declare them on accrual basis.” Schedule EI mentions above sentence. I construe that PPF/EPF have to be mentioned only on withdrawl. Pls comment.

  4. Bunker says:

    I confirmed from a local Income tax officer (through my relative) about this issue.

    The answer is:
    PPF interest accrued in the PPF Account annually, must be considered in “Exempt Income” of that year. If annual “Exempt Income” goes above Rs 5,000 then breakup of such income should be given in ITR-2. The annual PPF interest must be mentioned in the first line in Schedule-EI of form ITR-2 in such cases.

  5. Bunker Guide says:

    Instructions for filing ITR-2 Schedule-EI:

    Schedule-EI

    (i) Furnish the details of income like agriculture income, interest, dividend, etc. which is exempt from tax.

    (ii) The details may be filled on cash basis unless there is any provision/ requirement to declare them on accrual basis.

    The breakup of the word “interest” is missing to say which components and interest in which scenario.

    It could be NRE deposit interest for those who are NRI, yet filing ITR-2 as “Non Resident” then such NRE deposits fetch tax free interest every year. Not sure.

  6. Bunker Guide says:

    I dont think partial withdrawal from PPF account will get termed as ‘premature withdrawal’. No TDS is deducted by bank if you withdraw from PPF account as per the norms laid down in PPF Act. I believe withdrawals can start from seventh year onwards (once a year only) and they all will be tax free if it does not exceed 50 per cent of the balance at the end of the fourth year, or 50 per cent of the balance at the end of the immediate preceding year, whichever is lower.

  7. Bunker Guide says:

    Thanks Ashal. I agree that mere crediting of PPF interest should not be reported because then we will have to report EPF interest too. I have’nt received EPF slips since last 3 yrs due to shoddy work of EPFO chennai.

    New questions arise now. You have said that PPF withdrawal amount needs to be reported in the year of PPF withdrawal on the EI sheet. But if you see ITR-2 EI worksheet, the components of Exempt Income are “Interest Income”. I believe, only the interest needs to be reported and not the entire amount withdrawn? Is that correct?

    If the bank credits single amount in my savings account, how will taxpayer know only the “Interest Income” from that amount? Is there a way to figure out, what was the interest component in that amount which the bank credited?

    Most sites wealth18, caclubindia, bemoneyaware say that every year we need to report PPF interest in EI.

    Exempt Income definition is a thorn for sure. No one knows the components that need to be considered in Interest Income and Others.

    1. Mohit Pandey says:

      Buner,

      Since PPF is EEE(Exempt, Exempt, Exempt) product, just declare the total withdrawal amount as other income in EI sheet, this is applicable if you withdraw on or after maturity.

      For pre-mature withdrawal, I think TDS will be deducted (not sure about it, Please confirm with bank about it).

  8. Dear bunker, as per my opinion (I may be wrong) PPF amount is to be reported only in the year of withdraw as exempted income be it partial withdraw or full. the reason of my understanding, like PPF, PF is also having EEE status, do we declare the accumulated interest in it each year. the answer is plain NO. So PPF interest which is merely accrued to you in your PPF account & not redeemed by you, should not be reported by you in your ITR form.

    thanks

    Ashal

  9. Bunker Guide says:

    One conflicting reply found in this link which says PPF interest credited to PPF account but not withdrawn is not Exempt Income:

    http://localhost/jagoforum2/which-it-return-form-rental-income-ppf-interest-5k/8879/

    Maybe experts like Manish or Ashal have to step in for clarity. I tried looking for a CBDT notification on google and could not find one in this regard.

  10. bemoneyaware says:

    You need to show exempt income in your income tax return. PPF interest earned everyyear is exempt income and as this is more than 5000 Rs you need to file ITR2.
    Our article Exempt Income and Income Tax Return talks in detail about how to show the income

  11. Bunker Guide says:

    The whole thing boils down to: what constitutes as tax free income in a financial year for a taxpayer?

    – PPF interest credited in account
    – PPF interest withdrawn in a financial year
    – Dividends from traded shares
    – Dividends from mutual funds

    are all the above part of that “tax free” income which the govt has set a limit of Rs 5000?
    Or is the first item excluded from the concept called “tax free” income?

    Experts need to clarify!

  12. nsabhyankar@gmail.com says:

    Should one use ITR 2 for PPF interest deposit in the account? In answer to a similar query, I was told that ITR2 is not needed since the interest is not taken out just deposited in the account.

  13. Mohit Pandey says:

    Bunker, there is no answer they want these details and why cant they calculate interest from PPF balance.

    You can declare this detail in EI sheet (Interest Income) of ITR-2.

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