Everything about PPF and its Tax Benefits

What is PPF (Public Provident Fund)?

PPF stands for Public Provident Fund which is backed by Indian Government. It is the most common investment for a number of decades. Its features like guaranteed return, tax exemption under section 80C as well as tax free interest under section 10(11) makes it the most popular investment among the risk averse investors. Any person whether employed or self employed can open a PPF account.

Another benefit is PPF account cannot be attached under a court order for recovery of a loan or liability.

Tax Benefits on PPF

1. Tax exemption under section 80C upto a limit of Rs. 1,50,000. Tax exemption under section 80C can be availed by parents in case of deposits by minor. Total amount deposited by parent along with minor cannot exceed Rs. 1,50,000 thus total deduction under section 80C cannot exceed Rs. 1,50,000 in any case.
2. Interest on PPF is completely tax free without any limit. It is not taxable at the time of accrual nor at the time of receipt under Section 10(11).
3. Maturity as well as premature withdrawal is also exempt from tax under Section 10(11).

Note – PPF act is governed by Government Savings Banks Act, 1873 (Public Provident Fund Act, 1968 is merged into Government Savings Banks Act, 1873 from 13 Feb 2018). Finance Act 2021, added a specific condition limiting exempted interest on the contribution up to Rs 2,50,000 only. However, this condition is not applicable on PPF. It is applicable on Employee Provident Funds.

PPF Interest Rate

The Current PPF interest rate is 7.1% (Q1 of FY 2024-25)

The PPF interest rate is subject to change in every quarter based on the notifications issued by the Government of India. Interest is compounded annually and credited at the end of every financial year. If amount is deposited on or before 5th of the month then interest is credited for the whole month otherwise interest will not be given for the whole month. Interest is not calculated day wise but calculated monthly.

Interest rate is decided by government and thus it is same for all banks and post office. Since PPF interest is exempt from income tax under Section 10(11), no TDS is deducted on it whatever the amount is.

Opening PPF A/c 

• Can be opened in post offices or any authorised banks. Now days most of the public and private sector bank offer PPF account.
• Can be opened by minors.
• Can’t be opened in joint names.
• Can’t be opened by HUF, NRI. However, if someone opens a PPF Account while he is a Resident of India but subsequently becomes a NRI, he shall be allowed to continue investing in his account.
• Nominee can be appointed by the account holder. After death of account holder, nominee cannot continue the account.
• The date of realization of cheque in Government account shall be date of opening of account.
• A Power of attorney holder can neither open or operate a PPF account.
• The grand father/mother cannot open a PPF account on behalf of their minor grand son/daughter.
• A person can open only one PPF account.
• Account can be transferred from one post office or bank to another post office or bank.

Documents Required for Opening PPF Account

• A recent passport size photograph.
• Identity Proof copy with original to verify (Even PAN Card may be accepted as all tax payers are having it)
• Address Proof copy with original to verify
• Account opening form
• Paying in slip for deposit
• Nomination form

Depositing Amount

• Maximum amount that can be deposited in a year is Rs. 1,50,000
• After opening account minimum Rs. 500 is to be deposited each year. Penalty is Rs. 50 for default per financial year.
• Amount can be deposited not more than 12 times in a year and not more than 2 times in a month.
• The deposits shall be in multiple of Rs.100/- subject to minimum amount of Rs.500.
• Amount can by deposited by cash or cheque or via online payment.

Period and Lock in Period

PPF account is opened for a period of 15 years. However on expiry account can be extended to a period of 5 years at a time. It can be extended any number of times for a period of 5 years each.

Withdrawal of Amount from PPF

There is a lock-in period of 15 years and the money can be withdrawn in whole after its maturity period. However, pre-mature withdrawals can be made from the end of the sixth financial year from the year in which account is opened.

The maximum amount that can be withdrawn pre-maturely is equal to 50% of the amount that stood in the account at the end of 4th year preceding the year in which the amount is withdrawn or the end of the preceding year whichever is lower. After 15 years of maturity, full amount can be withdrawn.

You can calculate the maximum amount that can be withdrawn from your account using our PPF Maximum Withdrawal Limit Calculator.

Premature withdrawal on account of medical expenses or higher education is now allowed after 5 years.

Closure of Account

Nominee/legal heir of PPF Account holder on death of the account holder can not continue the account, and PPF account is required to be closed.

Account holder can premature close his account after completing 5 financial years of opening of account. The condition is that the amount is required for treatment of serious aliments or life threatening diseases of the account holder, spouse or dependant children or parents or for higher education of the account holder. The account holder has to submit documents related from competent medical authority or  fee bills from a recognised institute of higher education as the case may be.

If a person prematurely closes the account then account is debited from one percent interest rates from opening of account to closing of account. In other words , the account holder gets one percent less interest rate for the whole period of account.

Note – Previously premature closure is not allowed except in case of death. Government provide this option from 18 June 2016. Notification dated 18th June 2016

Extension of Account beyond 15 years

Basic period of the account is 15 years however account holders can choose to extend the tenure. Tenures can be extended in 5-year blocks with or without making further investments. Extension can be made only within one year from the date of maturity.

• If no fresh investments are made after maturity, the account can continue earning interest on the amount accrued in the account until the end of year 15. Also, in this case, funds can be withdrawn freely once every financial year.
  
• If fresh investments are made after maturity – The interest will be calculated as per available balance in account. However, in this case, withdrawals will be restricted to a maximum of 60% of the amount held in the account at the start of each 5-year period of extension.

Loan Against PPF

This option helps in arranging loans for you at cheapest rates for short period of time. It is the easiest and cheapest method of taking loan. Personal loans from banks carry a high rate of interest normally 14% plus whereas loan against PPF carries lower interest rate which is near to 10%.

Benefits

• Loan repayment period is generally 3 years.
• For availing this loan facility, no other security is required.
• Interest rate is lower as compared to personal loans availed directly from bank.

Conditions for loan eligibility

• Limit on loan amount – There is a limit of loan amount that can be availed against PPF balance which is 25% of the balance left in the account at the end of second year immediately preceding the year in which loan application was filed. For example, if loan is applied in Nov 2023, then 25% of the balance in PPF account at 31^st March 2022 shall be the limit of availing loan.
  
• Time period in which loan can be taken – You cannot avail loan immediately after opening a PPF saving account. You are eligible to avail loan against PPF after completion of one year from the end of fiscal year in which ppf account was opened. Also the loan can be taken before the expiry of five years from the end of the fiscal year in which account was opened. For eg if PPF account is opened in Aug 2014 then loan can be taken from April 2016 to March 2020.
  
• Limit of one loan at a time – You cannot take two loans against PPF account at one time. The previous loan must be repaid first to obtain second loan. Moreover you can avail loan against PPF only once in every 12 months, even if previous loan is settled.
  
• Interest Rate – The interest rate charged on loan is 2% more than the interest rate received on PPF account. It means you are required to pay only 2% interest on loan availed by you which is a very beneficial option as personal loan availed directly will charge very high rate of interest, generally between 14-21%.
  
• Repayment options – The principal amount has to be repaid within 36 months. Loan against PPF includes easy repayment options as loan can be repaid in lump sum or in two or more monthly installments. If interest amount is not paid, it can be deducted from your PPF account balance. In case there is default in repayment after the end of 36 months, an increased rate of interest will be charged i.e. 6% more than what you are receiving on your deposits. It is recommended that one should do his own research & gather full knowledge of the concept before taking decision regarding loan against PPF.

Note – If there is any loan taken by the subscriber earlier which remains unpaid at the time of withdrawal, then it will be subtracted from the withdrawal amount he/she is eligible for. Further, this facility is available only once a year.

FAQ