Example of PPF calculation
| Parameter | Value |
|---|---|
| Annual Investment | Rs. 1,00,000 |
| Interest Rate | 7.1% per annum |
| Investment Tenure | 15 years |
| Total Investment | Rs. 15,00,000 |
| Total Interest Earned | Rs. 16,29,117 (approx.) |
| Maturity Value | Rs. 31,29,117 (approx.) |
This example illustrates the power of long-term compounding. An investment of Rs. 15 lakh over 15 years grows to over Rs. 31 lakh, effectively more than doubling your money - completely tax-free.
PPF guide: features, rules and tax benefits
The Public Provident Fund (PPF) is a government-backed, long-term savings scheme in India, making it one of the safest investment options available to individuals. Introduced by the National Savings Institute of the Ministry of Finance, PPF encourages small savings and offers attractive, tax-free returns.
Three Key Inputs:
Annual Investment
The amount you plan to invest in your PPF account each year.
Investment Tenure
The duration of your investment, starting from a minimum of 15 years.
Interest Rate
The current PPF interest rate as declared by the Government of India (currently 7.1% per annum).
PPF Formula
Government Security
PPF is backed by the Government of India, ensuring zero risk to your principal.
Compound Interest
Interest is compounded annually, significantly boosting your wealth over time.
Tax-Free Maturity
The entire maturity amount, including interest, is completely tax-free.
Loan Facility
You can avail a loan against your PPF balance from the 3rd to the 6th financial year.
Partial Withdrawals
Partial withdrawals are permitted from the 7th financial year onwards.
Account Extension
After the 15-year maturity, the account can be extended in blocks of 5 years.
- •Only one PPF account is allowed per individual. A second account can be opened in the name of a minor child.
- •A maximum of 12 deposits can be made in a PPF account per financial year.
- •Partial withdrawals are allowed from the 7th financial year, subject to a maximum of 50% of the balance at the end of the 4th year or the preceding year, whichever is lower.
- •The account can be extended after the initial 15-year period in blocks of 5 years, with or without further contributions.
- •If the minimum annual contribution of Rs. 500 is not made, the account becomes inactive and attracts a penalty of Rs. 50 per year.
PPF enjoys the EEE (Exempt-Exempt-Exempt) tax status, which is the most favorable tax treatment for any investment in India:
Investment Deduction
Contributions eligible for tax deduction under Section 80C, up to Rs. 1.5 lakh per year.
Tax-Free Interest
The interest earned on PPF is completely exempt from income tax.
Tax-Free Maturity
The maturity amount received at the end of the tenure is fully tax-free.
To estimate how much tax you can save through PPF contributions, use our Income Tax Calculator.
PPF terms & definitions
A government-backed, long-term savings scheme in India with a 15-year lock-in period, offering tax benefits and guaranteed returns.
The mandatory 15-year period during which you cannot withdraw the entire PPF amount. Partial withdrawals are allowed after the 7th year.
The total amount you receive after 15 years, including your contributions and compound interest earned over the investment period.
Tax deduction provision allowing up to ₹1.5 lakh annual deduction from taxable income for PPF investments and other specified investments.
Exempt-Exempt-Exempt taxation means contributions are tax-deductible, interest earned is tax-free, and maturity amount is also tax-free.
Interest calculated on both the principal amount and previously earned interest, leading to exponential growth of your PPF investment over time.
Option to withdraw up to 50% of the balance at the end of 4th year or preceding year's balance, whichever is lower, from the 7th year onwards.
You can take a loan against your PPF balance from the 3rd to 6th year, up to 25% of the balance at the end of 2nd preceding year.
After 15 years, you can extend your PPF account in blocks of 5 years with or without making fresh contributions.
Facility to nominate beneficiaries who will receive the PPF amount in case of the account holder's demise during the investment period.
Smart PPF tips
Maximize Annual Contribution
Invest the maximum ₹1.5 lakh annually to get full tax benefits and maximize returns.
Invest Early in Financial Year
Make contributions in April-May to earn interest for the entire year.
Use for Long-term Wealth Creation
PPF is ideal for retirement planning and long-term financial goals.
Consider Extension Options
After 15 years, you can extend PPF in 5-year blocks for continued tax-free growth.
Plan Partial Withdrawals Wisely
From 7th year, you can withdraw up to 50% for emergencies, but it reduces future returns.
Maintain Regular Contributions
Consistent annual contributions help maximize the power of compounding over 15 years.
PPF Calculator FAQs
What is the current PPF interest rate?
The interest rate on PPF accounts is set by the Government of India and revised quarterly. Currently, the PPF interest rate is 7.1% per annum, compounded annually. The rate is reviewed every quarter and may be revised based on government bond yields and monetary policy.
What is the minimum and maximum investment in PPF?
The minimum annual contribution required in a PPF account is Rs. 500 to keep the account active. The maximum investment allowed in a financial year is Rs. 1,50,000 (Rs. 1.5 lakh). Exceeding this limit does not earn any interest on the excess amount.
What is the lock-in period for a PPF account?
A PPF account has a lock-in period of 15 years. After completing 15 years, the account matures and can be extended in blocks of 5 years. During the lock-in period, only partial withdrawals (from year 7 onwards) are permitted.
How is PPF interest calculated?
PPF interest is calculated on the lowest balance between the 5th and the last day of every month. This means if you deposit before the 5th of a month, your deposit earns interest for that month. The interest is credited to the account at the end of the financial year (March 31).
Can I withdraw money from PPF before maturity?
Partial withdrawals are allowed from the 7th financial year of the PPF account. The withdrawal amount is limited to 50% of the balance at the end of the 4th year or the year immediately preceding the withdrawal year, whichever is lower. Full premature closure is allowed only in specific circumstances such as life-threatening illness or higher education.
Is PPF better than a Fixed Deposit?
PPF offers tax-free returns under the EEE status, long-term compounding, and government security, making it superior for long-term wealth creation and tax saving. Fixed Deposits, on the other hand, offer higher liquidity and flexible tenures but interest is fully taxable. Use our FD Calculator to compare Fixed Deposit returns side by side with PPF.
Can NRIs invest in PPF?
Non-Resident Indians (NRIs) cannot open new PPF accounts. However, if a person held a PPF account before becoming an NRI, they can continue to contribute to the account until maturity (15 years). After maturity, NRIs cannot extend the PPF account further.
How does PPF compare to SIP investments?
PPF is a fixed-return, government-backed instrument ideal for risk-averse investors seeking guaranteed tax-free growth. SIP (Systematic Investment Plan) in mutual funds offers potentially higher market-linked returns but comes with associated risk. Use our SIP Calculator to estimate SIP returns and compare them with your PPF projections.