What is PPF? Interest Rate, Rules & Withdrawal

Who Can Open a PPF Account?

1. Who is Eligible?

Any resident Indian citizen can open a PPF account, regardless of age. A parent or legal guardian can open and manage an account on behalf of a minor child.

2. Who is Not Eligible?

Non-Resident Indians (NRIs), Hindu Undivided Families (HUFs), and corporate entities cannot open new PPF accounts.

3. NRI Account Exception

If you open a PPF account as a resident and later become an NRI, you can maintain the account until its original maturity date on a non-repatriable basis.

What are the Tax Benefits of PPF?

PPF is commonly described as an Exempt-Exempt-Exempt (EEE) investment because the contribution, interest earned, and maturity proceeds receive tax benefits under applicable rules.

• Exempt 1 – Investment: Contributions to PPF qualify for a deduction under Section 80C under the Old Tax Regime, subject to applicable conditions and the overall ₹1.5 lakh Section 80C limit. The maximum amount that can be deposited in PPF in a financial year is ₹1.5 lakh.
• Exempt 2 – Interest: Interest earned on a PPF account is exempt from income tax under applicable tax rules.
• Exempt 3 – Maturity: The amount received when the PPF account matures is generally exempt from tax, subject to prevailing tax rules.

Tax Regime Impact: Under the New Tax Regime, PPF contributions do not qualify for the Section 80C deduction. However, the tax-free treatment of PPF interest and maturity proceeds continues to apply under applicable rules.

Note: Under the updated Income Tax Act, 2025, the classic Section 80C deduction provisions have been renumbered as Section 123.

What Are the Minimum and Maximum PPF Investment Limits?

• Minimum Contribution: You must deposit at least ₹500 in a financial year to keep the account active.
• Maximum Contribution: You can deposit up to ₹1.5 lakh per financial year.

Note: Any amount deposited above the ₹1.5 lakh limit is not eligible to earn PPF interest or claim a tax deduction under Section 80C.

What Happens If You Do Not Deposit the Minimum Amount?

If you do not deposit at least ₹500 in a financial year, the PPF account becomes discontinued. Discontinued accounts do not earn normal active account benefits, and loans or partial withdrawals are not permitted until the account is revived.

Steps to Revive a Discontinued Account:

1. Approach the bank or post office where the account is held.
2. Pay a ₹50 penalty fee for each year the account remained discontinued.
3. Deposit the minimum ₹500 for each missed financial year.
4. Make the required minimum ₹500 contribution for the current financial year.

What is the Current PPF Interest Rate & How is It Calculated?

The PPF interest rate is set by the Government of India and reviewed every quarter. The current PPF interest rate is 7.1% per annum. Although interest is calculated on a monthly basis, it is credited to the PPF account at the end of the financial year.

The 5th-of-the-Month Rule

The timing of deposits affects the interest earned for a particular month. PPF interest is calculated on the lowest balance in the account between the close of the 5th day and the end of that month.

• Deposit on or before the 5th: The deposited amount earns interest for that month.
• Deposit after the 5th: The new deposit starts earning interest from the following month.

Pro Tip: If making a yearly lump-sum contribution, depositing it early in the financial year, preferably before April 5, can allow the entire amount to be considered for interest for the full financial year.

What are the PPF Withdrawal & Maturity Rules?

PPF is designed for long-term savings with a standard maturity period of 15 years. However, the scheme allows early access to funds through loans and partial withdrawals, while premature closure is permitted under specific situations.

1. Partial Withdrawal Rules

From the 7th financial year onward, account holders can make a partial withdrawal, subject to prescribed conditions. Only one withdrawal is allowed per financial year.

The maximum withdrawal amount is capped at 50% of the lower of two balances:

• The account balance at the end of the 4th financial year immediately preceding the withdrawal year.
• The account balance at the end of the immediately preceding financial year.

Partial withdrawals do not close the account; the remaining balance continues to earn interest.

2. Premature Account Closure

A PPF account can be closed before maturity only after completing 5 financial years and under specific conditions:

• Treatment of a life-threatening disease affecting the account holder, spouse, dependent children, or parents.
• Funding higher education for the account holder or dependent children.
• Change in the account holder's residency status, subject to applicable rules.

Penalty: Premature closure carries an interest reduction penalty. The interest payable on premature closure is calculated at a rate 1 percentage point lower than the rate applicable to the account.

3. Options at 15-Year Maturity

Once the PPF account reaches maturity, you can choose from three options:

1. Full Withdrawal and Closure: Withdraw the entire maturity balance and close the account.
2. Extension Without Fresh Contributions: Continue the account in 5-year blocks without making new deposits. The balance continues to earn interest, and withdrawals can be made per extended account rules.
3. Extension With Fresh Contributions: Continue the account in 5-year blocks while making fresh contributions.

Important Note: To extend the account with fresh contributions, you must submit the required declaration (Form 4) within one year from the date of maturity. Fresh deposits made without submitting this declaration will not receive PPF interest or tax benefits.

Final Thoughts

PPF works best as a long-term savings option rather than a source of quick access to money. Its structured tenure encourages consistent saving, while the government-notified interest rate and applicable tax benefits can add value over time.

Before opening an account, consider how much money can be set aside for the long term and whether the PPF lock-in period fits the overall financial plan.

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