Key Features of PPF

Interest Rate

The Public Provident Fund (PPF) in India currently offers an annual interest rate of 7.1%, which is compounded annually. This rate is set by the government and is subject to periodic review, meaning it can change based on official announcements. Interest on PPF deposits is calculated on the lowest balance between the close of the fifth day and the end of each month, so to maximize interest earnings, it is advisable to make deposits before the fifth day of the month. Deposits made after this date will not earn interest for that particular month. The interest is credited to the account at the end of each financial year, and both the interest earned and the maturity proceeds are completely exempt from income tax.

Investment Limits

You can open a Public Provident Fund (PPF) account with a minimum initial deposit of just ₹100, but you are required to deposit at least ₹500 each year to keep the account active. The maximum amount you can deposit in a PPF account in a single financial year is ₹1,50,000, and you are allowed to make deposits as many times as you wish, provided you do not exceed this annual limit. It’s important to note that the combined annual deposit limit of ₹1,50,000 applies to both your own PPF account and any account you may open on behalf of a minor. Investments in a PPF account are also eligible for tax benefits under Section 80C of the Income Tax Act, up to the same annual limit of ₹1,50,000.

Tenure

The minimum tenure for a Public Provident Fund (PPF) account is 15 years. After this period, you have the option to extend the account in blocks of five years each. While you cannot withdraw the entire balance during the initial 15 years, partial withdrawals are permitted from the fifth year onwards for specific purposes. Once the 15-year term is complete, you can choose to extend the account either with or without making further contributions. If you opt to extend with contributions, you are allowed to withdraw up to 60% of the balance remaining at the start of the extension period, spread over the next five years, with one withdrawal permitted per year. Even if you decide not to make additional deposits after the original term, the account will automatically continue to earn interest and you can still make withdrawals.

Eligibility

To open a Public Provident Fund (PPF) account, you must be a resident Indian citizen, with no age restrictions, making it ideal for long-term financial goals at any stage of life. Parents or guardians can open a PPF account for a minor child, but the combined annual deposit limit of ₹1,50,000 applies to both the guardian’s and the minor’s accounts for tax purposes. An individual can hold only one PPF account in their name, except for an additional account opened for a minor under their guardianship. Non-resident Indians (NRIs) are not allowed to open new PPF accounts; however, if an account was opened while the individual was a resident, they may continue making deposits until the account matures, though extensions are not permitted. To open a PPF account, you must provide valid identification, proof of address, and a recent photograph, along with proof of age for minor accounts.

Tax Benefits

Investing in a Public Provident Fund (PPF) provides numerous tax benefits, making it a highly tax-efficient savings option in India. Contributions to a PPF account are eligible for a deduction of up to ₹1.5 lakh per year under Section 80C of the Income Tax Act, which helps reduce your taxable income. Moreover, the interest earned on the investment and the maturity amount are completely exempt from income tax. This means that neither the returns nor the final payout is subject to taxation. Classified as an Exempt-Exempt-Exempt (EEE) investment, the PPF offers tax-free contributions, tax-free growth, and tax-free withdrawals. These advantages make the PPF an excellent choice for minimizing tax liability while accumulating long-term savings in a secure, government-backed scheme.

Loan Facility

After three to six years from the date of opening your PPF account, you become eligible to take a loan against your PPF balance. The maximum loan amount you can avail at the end of the second year is limited to 25% of the balance available in your account two years prior to the year in which you apply for the loan. For example, if your account balance is ₹1,00,000, you can borrow up to ₹25,000. The loan must be repaid within three years, and a nominal interest rate of 1% per annum is charged on the borrowed amount. This facility offers a convenient way to meet urgent financial needs without requiring any collateral or undergoing credit checks, allowing you to access funds quickly while keeping your long-term savings intact.

Partial Withdrawals

You can make partial withdrawals from your Public Provident Fund (PPF) account after seven years from the end of the financial year in which you made your first deposit. The maximum amount you can withdraw is capped at 50% of the lower of these two amounts: the balance at the end of the financial year immediately preceding the withdrawal or the balance at the end of the fourth financial year before the year of withdrawal. To initiate a withdrawal, you must fill out Form C and submit it along with your most recent passbook to your bank or post office. Only one partial withdrawal is allowed each financial year. The best part is that these withdrawals are completely tax-free, so you can access your funds without worrying about any income tax implications.

Nomination

If a PPF account holder passes away, the money in the account can be claimed by the nominated beneficiaries. You can nominate beneficiaries either at the time of opening the account or at any point later by submitting a nomination form. The account holder can specify how much each nominee should receive, dividing the amount among up to four nominees as desired. If any nominee is a minor, a guardian can be appointed to manage the funds until the nominee reaches adulthood. Making a nomination is important because it ensures that your PPF savings are transferred smoothly to your chosen beneficiaries without the need for a court order, helping to avoid legal complications and providing timely financial support to your loved ones.

Ways to open PPF Account

Online Process

Log in to internet banking: Access your internet banking account with a participating bank (e.g., HDFC, SBI, Axis)

Navigate to the PPF section: Click on the 'Public Provident Fund' or 'PPF Accounts' option.

Fill out the application form: Enter required details, including personal information and investment amount.

Verify details: Confirm all entered information.

Set standing instructions (optional): Automate deposits from your savings account.

Submit Application: An OTP will be sent for verification; enter it to confirm.

Account Creation: Your PPF account will be created, and an account number will be displayed.

Offline Process

Visit bank or post office: Go to a designated bank branch or post office.

Collect Application Form: Obtain the PPF account opening form.

Fill out the Application Form: Enter required details.

Gather Documents: ID proof (e.g., Aadhaar, passport). Address proof (e.g., voter ID, utility bills). Two passport-sized photographs. Pay-in slip or check for initial deposit.

Submit Documents: Hand over the completed form and documents to the bank or post office representative.

Initial Deposit: Make the minimum deposit of ₹500.

Account Creation: Once processed, you will receive a PPF passbook.