What PPF is and why it is unusual
The Public Provident Fund is a government-backed long-term savings scheme introduced in 1968. It is one of very few instruments in India with EEE tax treatment — Exempt at contribution, Exempt on interest, Exempt at maturity. Nothing is taxed at any stage.
That treatment is what makes PPF hard to beat for its risk level. A 7.1% tax-free return is equivalent to roughly 10.2% pre-tax for someone in the 30% slab. No fixed deposit offers that, and the capital is sovereign-guaranteed.
| Feature | Detail |
|---|---|
| Minimum deposit | ₹500 per financial year — miss it and the account is discontinued |
| Maximum deposit | ₹1,50,000 per financial year across all your PPF accounts |
| Tenure | 15 years, extendable in 5-year blocks indefinitely |
| Interest | Compounded annually, credited on 31 March, rate set quarterly |
| Tax on contribution | Deductible under Section 80C |
| Tax on interest | Fully exempt |
| Tax on maturity | Fully exempt |
| Who can open | Resident individuals only. One account per person. |
How PPF interest is calculated
Interest is calculated monthly on the minimum balance between the 5th and the month end, but it is only credited once a year on 31 March. So the effective mechanism is annual compounding.
- A
- Maturity amount
- P
- Annual deposit
- i
- Annual interest rate as a decimal
- n
- Number of years
This is the future value of an annuity-due, because a deposit made early in the financial year earns interest for that full year. This calculator models each year explicitly, so monthly deposits are handled correctly too.
A worked example
Every rupee of it is tax-free. Achieving the same after-tax result in a 30%-slab taxable instrument would need about 10.2% a year.
The effect of extending
PPF rewards patience steeply. Continuing the same ₹1,50,000 deposit past year 15 produces roughly ₹66.6 lakh at 20 years and ₹1.03 crore at 25 years. The last five years of a 25-year run add more than the first fifteen did, because compounding works on a much larger base.
Getting money out before maturity
PPF has a genuine 15-year lock-in, but three escape routes exist:
Partial withdrawal
Permitted from the 7th financial year. You may withdraw up to 50% of the balance at the end of the 4th preceding year, or the end of the previous year, whichever is lower. One withdrawal per year.
Loan against the balance
Available between the 3rd and 6th financial years, up to 25% of the balance at the end of the 2nd preceding year. Interest is charged at 1% above the PPF rate, and the loan must be repaid within 36 months.
Premature closure
Allowed after 5 complete financial years, but only for specified reasons: life-threatening illness of the account holder or a dependant, higher education of the holder or a dependent child, or a change in residency status. A 1% interest penalty applies to the entire holding period.
PPF compared with the alternatives
| Instrument | Return | Lock-in | Tax on gains | Risk |
|---|---|---|---|---|
| PPF | 7.1% | 15 years | None (EEE) | Sovereign — none |
| EPF | 8.25% | Until retirement | None if 5+ years | Sovereign — none |
| Sukanya Samriddhi | 8.2% | 21 years | None (EEE) | Sovereign — none |
| 5-year tax-saving FD | 6.5–7.5% | 5 years | Taxed at slab | Bank — very low |
| NPS Tier-1 | 9–11% | Until 60 | Partly taxed | Market-linked |
| ELSS mutual fund | 12–15% | 3 years | 12.5% LTCG | Market — high |
The honest comparison is against ELSS, which has historically returned more but can fall 30% in a bad year and has no guarantee. PPF is the fixed-income anchor of a portfolio, not a growth engine. Most planners suggest holding both — see the SIP calculator for the equity side.
Frequently asked questions
What is the current PPF interest rate?
7.1% a year, compounded annually. The Ministry of Finance reviews it quarterly and has held it at 7.1% since April 2020. Over the past decade it has ranged from 7.1% to 8.7%.
Because the rate can change, run this calculator at a slightly lower rate as well if you are planning a long horizon.
Can I invest more than ₹1.5 lakh a year in PPF?
No. The ₹1,50,000 limit applies across all PPF accounts in your name and any minor accounts you operate. Deposits above the limit earn no interest and are simply returned.
A common workaround is opening an account for a spouse or child, but the combined 80C deduction remains ₹1,50,000.
Is PPF interest taxable?
No. PPF has EEE status — the contribution is deductible under Section 80C, the interest is exempt, and the maturity amount is exempt. This is why 7.1% tax-free is worth roughly 10.2% pre-tax at the 30% slab.
What happens after 15 years?
Three choices. Withdraw the entire balance tax-free and close the account. Extend for 5 years with continued contributions, applying within one year of maturity. Or extend without contributions, in which case the balance keeps earning interest and you may withdraw once a year.
When is the best time to deposit into PPF?
Before the 5th of April, for a lump sum. Interest is calculated on the lowest balance between the 5th and the month end, so an early-April deposit earns for all twelve months.
For monthly deposits, before the 5th of each month. Depositing on the 6th loses that month's interest entirely.
Can NRIs open or continue a PPF account?
NRIs cannot open a new PPF account. If you opened one while resident and later became an NRI, you may continue contributing until the original 15-year maturity, but you cannot extend beyond it.