PPF Interest Rate 2023, Tax Benefits & Withdrawal Rules. (2024)

You reach your workplace, and as is the ritual, you start combing through your inbox and spot that email from your employer – it is that time of the year when you have to declare your investments. Despite all the promises about being ‘investment-wise’ that you had made to yourself at the beginning of the year. You get to the task at hand and start looking for tax-saving investments. The term ‘PPF’ catches your attention.

PPF’s full form is Public Provident Fund, and it is one of the most popular government-backed tax-saving investment schemes in India.

Here’s everything you need to know about PPF account and how it works.

1. What is PPF Account?

PPF is a government-backed savings plan with a number of advantages. It is a long-term investment option with a 15-year lock-in that provides higher returns than alternatives like a fixed deposit.

Investing in PPF is a tax-saving instrument. Also, for tax purposes, it comes under the EEE (Exempt-Exempt-Exempt) category, which means principal, interest earned, and maturity amount are exempt from taxes.

2. What is PPF Interest Rate 2023?

The PPF interest rate is announced by the Finance Ministry of India and the same rate is applicable to all PPF accounts irrespective of whether your PPF account is held with a bank or a post office. The interest rate of PPF accounts is reviewed on a quarterly basis by the Government and is subject to periodic change. The current PPF interest rate is 7.1% p.a. which has remained unchanged since Q2 2020. The below table shows the historic changes in PPF Interest rates from Q1 2017 i.e. January to March 2017 onwards:

3. How does PPF account work?

Any Indian individual can invest in the PPF scheme. You can invest in PPF for 15 years, and it can be extended further. You can deposit a minimum of Rs.500 in the PPF scheme, while the maximum limit is Rs.1.5 lakh per financial year. If the contribution exceeds the maximum limit, the excess amount is refunded to the member. You can invest in the PPF scheme in instalments or lump sum.

While there are no conditions for the number of times you can contribute to the PPF scheme, you have to make one contribution per financial year to keep the account active. In case you have missed a deposit in any financial year, then the account will be deactivated. You have to pay the penalty of Rs. 50, along with the minimum deposit amount of Rs.500, to reactivate it.

PPF scheme offers guaranteed returns on your contribution. Also, it provides you with a loan facility in which you can borrow funds from your PPF account.

The amount you contribute to the PPF scheme is eligible for deduction. Under Section 80C, you can deduct a maximum of Rs.1.5 lakh for PPF contributions. Also, interest earned and maturity received under the PPF scheme is tax-free.

4. How PPF interest rate is Calculated

PPF is a fixed return investment with an interest rate decided by the Government of India quarterly. Since its inception, the PPF interest rate has gone through many ups and downs. The current interest rate for the PPF is 7.1%.

PPF interest is calculated using the following mathematical formula:

FV = P[({(1+r)^n}-1)/r]

Where,

FV is future value,

P is the regular payment amount

r is the interest rate

Here is an example to understand how this formula works:

Let’s say you want to invest Rs 1.5 lakh per year in PPF for the next 15 years. Currently, the interest rate on PPF is 7.1%, assuming this interest rate is the same throughout the investment period.

Putting these values in the formula, 1,50,000[({(1+7.1%)^15}-1)/7.1%], we get Rs 37,98,514.68.

So, by investing Rs 1.5 lakh in a PPF for the next 15 years, your maturity proceeds will be around Rs 38 lakh.

You can use ET Money’s PPF calculator to calculate the interest and maturity amount for the PPF investment. You simply have to put your contribution amount, which can be quarterly, monthly or yearly, and investment period.

5. Who can open a PPF Account?

• All Indian citizens are eligible to open and hold PPF accounts.
• You can only hold one account in your name or open a second account on behalf of a minor.
• A PPF account cannot be held jointly; it can only be held in the name of one person.
• Non-resident Indians (NRIs) and Hindu Undivided Families (HUFs) cannot open PPF accounts. However, NRIs who had opened PPF accounts when they were resident Indians can continue to operate the account until maturity but will not be allowed to seek extensions.

6. Important Features of PPF you Should Know

There are many important features of PPF that you should know about so that you can maximize your benefits when you invest.

• Interest rates:
  The PPF(Public Provident Fund) interest rate is fixed by the Finance Ministry every quarter. The current PPF interest rate is 7.9%. And, though the interest is calculated every month, it gets credited to your account on 31st March every year. Also, the PPF interest is calculated on the minimum balance between the fifth and the last day of the month.
• Here is an example:
  Say, you have a balance of ₹1 lakh in your PPF account on 30th April. Now, let’s imagine you deposit ₹10,000 in your PPF account on 3rd May and ₹5,000 on 21st May. Now, the interest on your fund for the month of May will be calculated on ₹1.10 lakh and not ₹1.15 lakh.
• Lock-in period:
  The PPF lock-in period is 15 years, which means you can withdraw your entire corpus at the end of the 15th year only. But if you wish to stay invested for a more extended period, you can continue to do so (with or without making additional contributions). You can apply for extensions in 5-year blocks. There is no limit on how much time you can stay invested in the fund after the initial lock-in period of 15 years.
• Deposit rules:
  You have to make at least one deposit per year for 15 years. The PPF minimum deposit is ₹500, while the maximum that can be invested in a financial year is ₹1.5 lakh. If you make any deposit in excess of ₹1.5 lakh in a financial year, the transaction will be automatically rejected. Until recently, the number of deposits was capped at 12. But now, you can make any number of deposits in multiples of ₹50 in a financial year. You can make deposits in PPF online, or by cash, cheque and demand draft.
• Nomination facility:
  You can nominate more than one person. If you choose to nominate more than one person, you will need to mention the percentage of share; the shares of all nominees should add up to 100 per cent. Also, if the account has been opened on behalf of a minor, a nomination facility is not provided.
• Loans against PPF account:
  An advantage of PPF accounts is that you can take a personal loan against the balance in your PPF account provided your PPF investment is not due for withdrawal. This loan can be availed between the third and the sixth financial year of opening the account. The loan amount is limited to 25% of the balance at the end of the second financial year prior to the year in which you applied for the loan. You are not required to pledge a collateral when taking a loan against your PPF account. The interest charged on the loan is 2% per annum. The principal has to be repaid first within 36 months starting from the first day of the month following the month in which the loan was taken. You can repay the principal in a lumpsum or in two or more monthly installments. You will then have to pay off the interest in two monthly installments or less starting from the first day of the month following the month in which the loan was taken till the last day of the month in which you have paid the last installment of the loan. In case of failure to repay the principal amount in 36 months, interest rate of 6% per annum will be charged, instead of 1% . If you have taken a loan against your PPF account, the balance does not earn any interest until the loan has been paid off. Also, you cannot take a second loan until the first loan has been cleared completely.
• Attachment with debt:
  Public Provident Fund is regarded as a secure investment not only because it offers guaranteed returns but also because a PPF account cannot be attached to pay off debt or liability. This means, that no creditor be it an individual, entity or establishment can gain access to your PPF account funds to recover dues.
• Investment limits: To keep your PPF account active, you must make a minimum investment of Rs 500 per financial year. However, you can only invest upto Rs 1.5 lakh per financial year. If you open an account in your name and in your child’s name, remember that the total amount you can invest (in both accounts) during a financial year is ₹1.5 lakh only.
• Opening balance: You can open a PPF account with a minimum amount of Rs 100; however, you must deposit a minimum amount of Rs 500 in a financial year.
• Deposit frequency: There are no restrictions on the number of installments in a financial year. You can invest any amount in the multiple of Rs 50, but the maximum amount can not exceed Rs 1.5 lakh.
• Mode of deposit: You can deposit your contribution in PPF via cash or cheque at the bank or post office. It also allows you to deposit through online modes such as NEFT, ECS and Standing instructions.
• Risk factor: It is considered a risk-free or low-risk investment option due to the government-guaranteed interest. You earn an assured return on your investment with zero market risk.
• Tax benefit: PPF investment comes under the EEE (Exempt-Exempt-Exempt) category. This means the amount invested, interest earned, and maturity amount are tax-free.
• Partial withdrawal: It has a lock-in period of 15 years, but it also comes with a partial withdrawal facility upto some specified limit.

7. Tax Benefits of PPF

Investments up to ₹1.5 lakh are eligible for tax deductions under Section 80C. And since the maximum amount you can deposit in a PPF is ₹1.5 lakh per annum, it simply means that the entire amount can tax deductible (provided you have made no other investments under Section 80C).

You should also know that PPF investments fall under the Exempt-Exempt-Exempt (EEE) category. This means:

• The amount you invest in PPF is exempt from tax
• The interest you earn on PPF is exempt from tax
• The final corpus at the time of withdrawal is also exempt from tax.

And if you are investing mainly for the purpose of tax saving, the EEE tax status helps. This is why the PPF scheme is considered a great tax saving option.

8. Process to open a PPF account

You can open a PPF account in both online and offline mode. Here is the step-by-step process for both methods.

Online Method

To open a PPF account online, you must have an account in the post office or participating bank. Also, you must have enabled internet banking or mobile banking facility in your account.

Steps for online method:

Step 1: Sign in to net banking or mobile banking with a user ID and password.

Step 2: Go to the “Public Provident Fund” option

Step 3: Enter the amount you want to invest.

Step 4: Fill in the necessary basic information and update the nominee details.

Step 5: Select the account from which money will be deducted.

Step 6: Click on Submit application.

After this, you will receive the OTP and enter the OTP, and your account will be created instantly. Now, you can deposit money into your PPF account directly from your savings account and also through other modes.

Offline Method

If you are facing issues in opening your account through online mode, then you can open it via offline mode.

Steps for Offline mode:

Step 1: Visit the nearest post office or bank branch.

Step 2: Fill in the PPF application form.

Step 3: Attach the necessary KYC documents with the application form.

Step 4: Submit the application.

After you submit your application, the bank or post office official will verify the details and open your PPF account. As soon as your account is opened, you will receive confirmation from your bank or post office.

9. PPF Account Withdrawal Rules Before Maturity

At the time of withdrawal (after 15 years), you have three options:

• Complete withdrawal:
  You can close your PPF account and withdraw your funds at the end of the 15th year. You will have to submit Form C to the post office or bank, where you have your PPF account, to terminate it.
• PPF account extension without contributions:
  If you don’t want to close your account, you can keep it active without making any further deposits for any amount of time. Interest will continue to be accrued on the balance till it is closed. You are allowed one withdrawal each financial year. There is no limit on the amount that you can withdraw though.
• PPF account extension with contributions:
  In case you want to keep your account active and continue making contributions to it, you can also apply for an extension of your account in 5 years blocks. There is no limit on the number of times you can extend the duration of your PPF account in your lifetime. And after the 15th year, you can maintain the account with or without making investments. You will have to submit Form 15 H to extend the duration of your PPF account within one year of the maturity of your account. You are allowed one withdrawal each year during the extended tenure provided, in 5 years, and you can not withdraw more than 60 percent of the total balance reflecting at the beginning of the extension period.
  If you continue to make deposits without having submitted Form H, the deposits made after maturity will not earn any interest and neither will they qualify for deductions under Section 80C of the Income Tax Act.

10. PPF Withdrawal Rules Before Maturity

• Premature withdrawals are allowed after the completion of five years from the end of the year in which the initial investment was made. That means, if you started your PPF account in Feb 2010, you can begin making partial withdrawals from the financial year 2015-16.
• You cannot withdraw the entire amount from your PPF account. The amount is capped at the lower of the two – 50% of the balance at the end of the fourth financial year or 50% of the balance at the end of the preceding year.

You can withdraw 50% of the corpus at the end of the fourth financial year (FY2013) or the preceding year (FY2017); whichever amount is lower. As per the table:

• Corpus at end of FY2013 is ₹2.40 lakh so 50% of that amount is ₹1.20 lakh
• Corpus at the end of FY2017 is ₹6.90 lakh so 50% of that amount is ₹3.45 lakh.
• This means you can withdraw ₹1.20 lakh in 2018.

11. Premature Closure

You can opt for the early closure of your PPF account only under certain circ*mstances; only if five years have elapsed since the opening of the account. To know when you can close your account prematurely, here are some specific grounds:

• If the account holder, his/her spouse, parents, dependent children are afflicted with a life-threatening disease, the PPF account can be closed. Relevant supporting documents and medical reports must be submitted to verify the reasons.
• If you need funds for higher education, you can opt for premature closure of your account. You will need to furnish relevant documents such as fee receipts and admission confirmation letters to substantiate the requirement.
• If your residency status has changed, you can prematurely close your PPF account. To attest the change in residency status, you will need to provide a copy of your passport, visa or Income Tax Return.
• In the case of premature closure of PPF accounts, the account holder receives 1% lower interest than the prevailing rate.

Know details of PPF withdrawal and closure rules

12. Public Provident Fund (PPF) Limitations

PPF accounts also come with a few drawbacks. Here is what you need to know:

• PPF comes with a lock in period of 15 years. This is considerably longer than the lock-in period of other tax saving investments like Equity Linked Saving Scheme (just three years). This can be a big problem in case of an emergency or if you want to meet some financial requirements during the investment period. And while you do have the option to make premature withdrawals, there are lots of rules and regulations regarding when and how much you can withdraw (as we have already discussed). So, before investing in a PPF account, you will have to be sure that you can stay invested for 15 years.
• Public Provident Fund interest rate is not very high; especially when you consider the fact that this is a long-term investment scheme. On the other hand ,ELSS has the potential to offer double-digit returns to investors.
• PPF accounts cannot be held jointly – this can be a limitation if you want to open a joint account with your spouse or other family members.
• The maximum amount that can be invested in a PPF account in a year is ₹1.5 lakh. On the other hand, there is no limit to the amount you can invest in other tax saving instruments like ELSS funds, NPS or FDs, although the maximum tax benefit that can be claimed is the same – ₹1.5 lakh under Section 80C.
• Resident Indians can open new PPF accounts, but this feature is not extended to NRIs. For instance, if you had a PPF account as a resident Indian, but have become an NRI, you can continue to deposit into your account. However, you cannot open any fresh accounts.

13. Summary

If you are averse to high risk investments and want the security that is a characteristic of government-backed investment instruments, PPF can be a good option. But from a return point of view, ELSS and NPS fare better than PPF owing to the higher capital appreciation potential of equities. Opt for an ELSS fund if you are looking for a short-term tax-saving investment. And if your objective is to prepare a retirement corpus, then you can reap better rewards by investing in NPS.

13. Frequently Asked Questions (FAQs)