When it comes to retirement planning in India, you might have heard a lot about PPF or Public Provident Fund. You might have surely got suggestions by your elders or friends to open a PPF or Public Provident Fund Account. One of the most common ways to invest your monthly savings!
So, here we shall be discussing everything about PPF or Public Provident Fund. Have a look at the present PPF Interest rate and know the PPF rules as applicable.
Public Provident Fund or PPF:
PPF or Public Provident Fund, is considered as one of the best long term investment options. This one is especially for the investors who want to invest their money for a longer duration without taking any sort of risk.
You will hopefully get answers to all your queries regarding PPF:
- What is PPF Account?
- Who can open a PPF Account?
- What are PPF Rules?
- What is PPF Interest rate?
- How Interest is calculated on PPF?
- What about PPF withdrawal and loan facility?
- What are tax benefits of investing in PPF?
- How to calculate PPF Principal and Interest amount by using the given PPF Calculator? (PPF Calculator given below).
Just the ultimate guide to all your possible queries regarding PPF or Public Provident Fund.
This is a bit lengthy post, you just need to sit back and enjoy your tea or coffee and keep adding to your knowledge about PPF side by side.(sip by sip….)
PPF Account, Interest rate & Tax benefits
PPF Scheme or Public Provident Fund Scheme was introduced in India in the year 1968 to encourage the people to save some money out of their earnings. The main objective of PPF is to build a good retirement corpus and provide a financially secure after retirement life.
PPF is a long term investment scheme of the Government of India. Your invest your money for a fixed duration and earn a fixed rate of interest on your investments. PPF is considered as a safe investment option since there is zero risk involved. You will get back what you have invested along with interest earned after a fixed period.
Who can open a PPF Account as per PPF Rules?
A Resident Indian, 18 years or above can open a PPF Account in any nationalised, authorised banks or post offices. Only one PPF Account is allowed per person. However, PPF Account can be opened for minor (below 18 years age) Here, the account shall be handled and deposits shall be made by the guardian (who is above the age of 18 years).
Grandparents cannot open PPF Account in the name of their grandchildren. HUF is not allowed to open PPF Account. Foreigners are not allowed to open PPF Account.
Also, Non Residents Indians or NRIs cannot open a PPF Account. But, if an individual opened a PPF Account while he was a Resident and later on he became a Non Resident Indian(NRI) he is allowed to continue his PPF Account and invest in the same till maturity i.e. upto 15 years period.
In October 2017 there was an amendment that PPF accounts of NRIs shall deemed to be closed from day they turn NRIs. However, this decision was revoked in Feb 2018 till further changes. So, presently NRIs can continue their PPF account. But, make sure to confirm the same from the respective banks.
Don’t miss to have a look at New PPF Rules: Changes introduced in 2019
PPF or Public Provident Fund Scheme: Key Features
1. PPF Contribution:
An initial amount of Rs.100 is required for PPF Account opening. The minimum annual contribution is Rs.500. The maximum contribution in a PPF Account can be upto Rs.1.5 lakhs only during a financial year (where financial year is 1st April to 31st March).
You cannot deposit beyond Rs.1.5 lakh limit. Even if you try doing so, the amount deposited in excess of Rs.1.5 lakhs won’t fetch any interest and it shall be returned to you.
2. Mode of Payment:
You can deposit in PPF Account through cash, cheque, DD or online funds transfer as well. These days people prefer making payments through online gateways which is much more convenient than visiting the bank. You have to deposit every year to let the PPF Account remain active and to avoid any penalty for non deposit. The maximum amount of deposit during a financial year can vary as per your convenience. You just have to maintain the minimum contribution and not exceed the maximum contribution.
You can make a one-time deposit in PPF Account or upto 12 instalments as per your convenience.
You may also like: SBI PPF Account : Interest rate, How to open it & transfer online?
3. PPF Lockin Period:
The lockin period for PPF is 15 years, (that is quite a long period) with partial withdrawal in the 5th year subject to certain conditions. Also, you can get an extension of extra 5 years at maturity i.e.if you want to invest in PPF beyond 15 years, you can do so by submitting the requisite form.
Important: The tenure for maturity starts from the immediate next financial year in which PPF Account has been opened.
e.g. If you open the account in Sep 2016, then 15 years count starts from 1st April’17 for maturity calculation. So, the 15 years tenure will be 1st April’17 plus 15 years.
4. PPF Rate of Interest:
PPF Rate of Interest is decided by the Government of India and revisions are made from time to time. The PPF interest rate was 8% p.a. for the quarter Oct to Dec’18. The same is unchanged for the next quarter as well. Hence, the present rate of interest is 7.9% per annum only. PPF amount yields a fixed rate of interest. PPF interest rates are as follows:
| Period | PPF Annual Rate of Interest |
| 1st Jan'20 to 31st March'20 | 7.9% |
| 1st Oct'19 to 31st Dec'19 | 7.9% |
| 1st Jul'19 to 30th Sept'19 | 7.9% |
| 1st Apr'19 to 30th Jun'19 | 8% |
| 1st Jan'19 to 31st March'19 | 8% |
| 1st Oct'18 to 31st Dec'18 | 8% |
| 1st July to 30th Sept'18 | 7.6% |
| 1st Apr'18 to 30th Jun'18 | 7.6% |
| 1st Jan'18 to 31st March'18 | 7.6% |
| 1st Oct'17 to 31st Dec'17 | 7.8% |
| 1st Jul'17 to 30th Sep'17 | 7.8% |
| 1st Apr'17 to 30th Jun'17 | 7.9% |
| 1st Jan'17 to 31st Mar'17 | 8% |
| 1st Oct'16 to 31st Dec'16 | 8% |
| 1st Jul'16 to 30th Sep'16 | 8.1% |
| 1st Apr'16 to 30th Jun'16 | 8.1% |
| 1st Apr'15 to 31st March'16 | 8.7% |
Depositing in PPF Account before 5th of a calendar month fetches you maximum interest. The same has been explained with the help of an example below. Keep reading further to grab more information….
5. PPF Tax Benefits:
PPF is considered as the best tax efficient tool because of the EEE nature it has. (here E stands for Exempt from tax)
You can claim a Tax deduction Under Section 80 C of Income Tax act,for contribution made towards PPF upto a maximum of Rs.1.5 lakhs.
So, PPF is normally considered as one of the Best Long term Investment Options due to its EEE nature i.e. Exempt, Exempt and Exempt.
To clarify further, EEE or Exempt at all 3 stages means:
- Contribution or Deposit amount is Tax free U/s 80 C of The Income Tax Act.
- Interest earned is Tax free.
- Maturity/Withdrawal amount is also Tax free.
Important Note: If PPF Account has been opened in the name of Minor, there will be no additional tax benefit to the guardian. This means total tax deduction U/s 80 C will be restricted to Rs.1.5 lakhs only including the amount deposited in both Minor PPF account and the major guardian account.
6. Loan Facility Available:
You can avail a personal loan against the balance in your PPF account between the 3rd and 6th financial year of opening the PPF account.
You can avail a maximum loan upto 25% of the balance at the end of the 2nd financial year preceding the year in which the loan is applied for.
7. PPF Withdrawal:
A complete withdrawal is allowed only at the time of maturity i.e. after 15 years lockin period. But, you can make partial withdrawals that too subject to certain conditions.
How Interest is calculated on PPF?
The PPF interest is compounded annually. However, the calculation of interest is done every month but the same is credited at year end. Interest is calculated on the lower of the balance held on the 5th of a month to the end of that particular month.
A Simple but useful Tip:
How to earn Maximum Interest on PPF during a month?
For any given month, the deposits made on or before the 5th will be considered for interest calculations for that particular month. Interest is calculated on the lower of the balance held on the 5th of a month to the end of that particular month.
So, if you deposit on or before 5th of a particular month, the same shall be considered for interest calculations for that month.
Example:
PPF Account balance of Mr.A on 1st October is Rs.50000. Mr.A wants to deposit another Rs.50000 to his account in October.
Option 1: If Mr.A deposits this amount on or before 5th October, the interest for the month of October will be calculated on total amount of Rs.100000 (balance as on 5th October).
Option 2: If Mr.A deposits after 5th October,say on 10th October, the interest for October will be calculated on Rs.50000 which is the balance as on 5th October. The additional Rs.50000 shall be considered for interest calculation in the next month i.e. November.
Hence, it will be beneficial for Mr.A to deposit on or before 5th October to earn some extra interest for the month.
Therefore, it is always better to deposit the amounts in PPF account before 5th of a calendar month to earn the maximum possible interest.
PPF Account: Is it worth Investing?
To conclude, PPF can be regarded as a great retirement planning tool. An efficient tax saving option wherein you get to enjoy tax free returns. In addition to it, you tend to build a good corpus at maturity without taking any risk.
However, the falling interest rates of PPF from 8.7% to 8.1% and further to 7.9% in the past few years is a major point of concern for the potential investors. The reduced PPF Interest rates over the earlier periods lead the investors to look into other investment alternatives.
Anyways, if you have surplus funds and are planning for your long term goals, you should consider PPF as an essential part of your Financial Portfolio. Park some of the funds in PPF and do explore other investment options also in order to diversify your funds and get higher returns.
For building a sound Financial Portfolio, you can go through our popular blog posts: 7 Best Long term Investments in India and SIP in mutual funds!
Feel free to share your valuable opinions in the comment section below! You liked it, do share it with your family and friends to help them in their retirement planning.
View Comments (26)
Hello,
I have a query between PPF and VPF. I am a salaried person and already contributing EPF. Now I want to invest either in VPF or in PPF. My query is that:
1) VPF interest is more than PPF. But if I contribute in VPF, part of it will go to EPS. After retirement I will not be able to withdraw EPS amount.
2) Though PPF interest amount is low still I can with drawn full amount.
Please suggest whether to invest in VPF or PPF.
VPF current rate of interest is 8.5% per annum, whereas PPF's is 7.6%(varies quarterly). I am a government employee, appointed on May 2016. I am already having a CPS account. In order to get more tax benefit and also for futures savings I also want to invest in either PPF or VPF. My doubt is, whether PPF yields more return or VPF? I am confused on quarterly interest calculations of PPF. Could you please help me in this.
I have a PPf a/c with SBI since 2003 in the name of my HUF. Now, it was due on 31.3.2018. I had sent extension form to SBI, they denied extending the same as its not allowed. I am quite confused as at some place it says I can keep extending existing PPF a/c but cannot open new one. Kindly help.
Hi, if I started PPF A/c with interest rate 7.8% and if interest rate decreases to 7.6% in next year then, what interest rate shall I get 7.8 or 7.6% on my invested amount? Please reply.
I have extended my PPF account after completion of 15 years and I want to know the partial withdrawals during the extended period will be same as the formula for partial withdrawal allowed during the 5 years i.e. 50% of the balance available in the past three years.If I want to withdraw partially is it 50% of balance available in my account as on 31.03.2015 of 31.03.2017 (50% of the lowest balances of these two years). Please guide.
Hello Sir, The withdrawal rules are slightly different if you extend your PPF account beyond 15 years with further contribution.In such a case,you will be allowed to withdraw 60% of the balance at the beginning of each extended period (block of five years). It means, let us say your account matured on 1st April, 2016.You shall be allowed 60% withdrawal during the block period of 5 years(extension period).This may be withdrawn either in a single withdrawal or in instalment in each year.Further,do clarify with your bank for the necessary form to be filled and any changes thereon.
Is there any difference in interest rate with respect to PPF and VPF/EPF?
Which is the better for long term investment.
Hi, The present interest rate on PPF has been reduced to 7.9% p.a. for the quarter Apr'17 to Jun'17. You can invest a maximum of 1.5 lakhs during a financial year and claim a tax deduction under section 80C for the amount contributed.
While the EPF is deducted from your salary by the employer if you are a salaried employee.The interest rate on EPF is 8.65% p.a. The employer’s contribution is exempt from tax and your contribution (i.e.employee’s contribution) is considered under section 80C investments. Looking at interest rates, EPF is anyways giving higher returns.
Thanks for your reply. I am a salaried employee. I am planning for VPF. Is it same as EPF (VPF is without Employer contribution).
Already my savings crossed 1.5 lakhs. So VPF will be still be tax exempted when I withdraw the amount after several years. Please let me know more inputs on VPF.
Also please let me know, is it good to go with VPF or with Mutual bonds.
Hello Sir,
VPF is a further extension of EPF where you voluntarily contribute a % of your salary to Provident fund.Also,the employer contributes towards EPF only and is not liable to contribute for VPF.The interest rate on VPF is similar to EPF.Further,VPF also enjoys similar tax benefits as EPF like the contribution made is eligible for tax deduction u/s 80C. You can claim a tax deduction U/s 80C upto a maximum of Rs.1.5 lakhs only.Since,you already cross your 1.5 lakh limit in other eligible investments,this point might not matter for you. The maturity returns are tax free like in EPF (provided you are in service for a continuous period of 5+ years and don't withdraw the amount before that period). If you are a risk averse investor,then such investments like VPF and PPF that generate fixed returns are good. But,if you can expand your risk horizon then only you should move towards mutual funds.Thanks.
Thank you for your inputs.
Very informative article. I just want to know that whether the PPF account can be opened online through the bank's website?
You can refer our article http://fintrakk.com/banks-offering-ppf-account-and-ppf-online-services/
Wow !! A very well written article. Thank you. I am planning to open a PPF a/c in SBI and deposit INR 1.5 L. If I open an a/c in the next few days considering today as 19-03-2017 then from when will the interest be calculated ? When should I deposit the money in the account ? Within how many days of creation of the account must I make a deposit ? The duration of 15 years begins from when, from date of creation of account or the date of first deposit made ? Suppose the bank creates my account on 27-03-2017 then can I make a deposit of 1.5L on or after 1-4-2017 ? Should my date of account creation be between 1-04-2017 to 05-04-2017 for the calculation of 15 years ?
Thanks Rohan,you need to know following points :
1.Firstly,if you open a PPF account in the month of March as you are thinking,the contribution you make shall qualify for tax deduction under section 80C for financial year 2016-17. But,if you open the account on or after 1st April 2017 the investment shall count for deduction for the next financial year.
2.The interest on balance in your PPF account is compounded annually and is credited at the end of the year. But,here you need to know that the interest calculation is done every month: the interest is calculated on lowest balances in account between 5th and last day of the month.So if you don't deposit on/before the 5th of a month, you don't earn interest for that month.
3.To earn maximum interest it is better to deposit amount in PPF account on or before 5th of every month.
4.The maturity period for PPF account is 15 years from the close of the financial year in which the initial subscription was made.If you open PPF account in March then, financial year ends on 31st March,2017.Hence,the maturity period shall be calculated from end of financial year i.e.31st March,2017.
5.The PPF account opening time is usually based on how fast the bank processes your application.Normally,it does not take much time if you submit all the requisite documents.
I was really confused, and this answered all my questions.Thanks for the useful info.
My father is retired now and he got 10 lakhs on his retirement. Will ppf be beneficial to invest in lumpsum amount.how to invest so that he can get monthly interest over that amount with no risk.
Hi Khushi,
At this point, safety of your money i.e.principal amount is more important.Your father might not opt to take high risk at this stage, so you can choose from the safer options like :-
1. Bank Fixed deposits : You can keep some amount in FDs to avail easy withdrawal facility,in case you need your money in between for some personal reasons.You will not get high returns but fixed returns based on type of FD.
2.Senior Citizen Saving Scheme : Investment limit is Rs.15 lakhs, investment duration is 5 years that can be further extended by 3 years.Interest is paid on quarterly basis. It qualifies for Section 80 C tax deduction also.
3.Post Office Saving Scheme : You can refer our detailed post http://fintrakk.com/post-office-small-saving-schemes-in-india/
4.Debt Mutual funds : They carry some risk but are a much safer option than equity funds.The underlying asset is debt,so considered a safer option to earn good returns and grow your money.However,if you are not comfortable taking any risk,this option might not suit you.
Regarding PPF,the present rate of interest is 8% p.a.and you can invest upto a maximum of Rs.1.5 lakhs only. PPF has been a common investing option.So,I think your father might already be having a PPF account,if so continuing the same is fine.
You can anyways distribute your money in different risk free options.
Thank you admin...! :)
Happy to help ...feel free to share any further personal finance queries !
Can I change the saving per year?
Suppose I save 48,000 for first year and Is it possible to save 96,000 or any another amount for next year?
Yes,you can contribute a minimum of Rs.500 to a maximum of Rs.1.5 lakhs to PPF Account during a financial year.
You can increase or decrease the PPF contribution as per your convenience, you just need to maintain the minimum contribution amount of Rs.500.
Thank you admin.
PPF is a good investment due to its tax free nature.The reducing interest rate is a point of concern but still it is a good and safe long term investment for people who can’t afford any risk.
Suppose i deposit 1 lakh in sep 2016 and continue to do so for next 15 years ,will i be able to withdraw the entire amount at the end of 15 years.
Yes,at maturity,you can close the account and withdraw the whole amount.But,you can also extend your PPF account for further 5 years with or without further contribution.
Here,one thing to be considered is that if you open the account in Sep 2016,then 15 years count starts from 1st April'17 for maturity calculation.
Also,earlier partial withdrawal is allowed subject to some conditions like medical grounds or higher education etc.