📋 In This Page
- What is PPF and why it remains India's best safe investment
- How PPF interest is calculated — formula and worked example
- Partial withdrawal rules — when and how much you can take
- Loan against PPF — eligibility, limit, and interest rate
- PPF extension after 15 years — with and without deposits
- PPF vs FD vs SIP — which gives better returns?
- 5 PPF mistakes that cost investors lakhs
- Frequently asked questions
What is PPF and Why It Remains India's Best Safe Investment
The Public Provident Fund (PPF) is a government-backed long-term savings scheme introduced in 1968 by the National Savings Institute. It is one of the very few investments in India that offers the EEE (Exempt-Exempt-Exempt) tax structure — meaning the investment, the interest, and the maturity amount are all completely tax-free. Over six crore PPF accounts are active in India, making it the country's most widely held investment instrument after bank deposits.
At 7.1% per annum compounded annually, PPF's post-tax effective return for a 30% slab taxpayer is approximately 10.1% — higher than most FDs, NSC, and even several debt mutual funds on a post-tax basis. The government guarantee eliminates credit risk entirely, and unlike equity investments, there is zero volatility. For anyone in the 20%–30% tax bracket with a 15+ year horizon, PPF is the single most efficient risk-free investment available in India.
🛡️
Government Guaranteed
Backed by the Government of India — zero credit risk, unlike FDs which are DICGC-insured only up to ₹5 lakh.
🌿
EEE — Triple Tax-Free
80C deduction on deposit, zero tax on interest, zero tax on maturity. The most tax-efficient safe investment in India.
📅
15-Year Wealth Builder
Compounding over 15 years at 7.1% turns ₹1.5 lakh/year into ₹40.68 lakh — 80% more than the total deposited.
🔄
Flexible Extensions
Extend beyond 15 years in 5-year blocks — with or without new deposits — to keep growing tax-free.
How PPF Interest is Calculated — Formula and Worked Example
PPF interest is calculated on the minimum balance in your account between the 5th and last day of every month. This calculated monthly interest is accumulated and credited at the end of the financial year (31 March). This monthly minimum-balance method has one crucial implication: deposits made on or before the 5th of a month earn interest for that full month. Deposits made after the 5th earn no interest for that month.
PPF Interest Calculation
Monthly Interest = Minimum Balance (5th–last day) × Annual Rate ÷ 12
Annual Interest = Sum of all 12 monthly interest amounts
Balance(Year N) = Balance(Year N-1) + Annual Deposit + Annual Interest
Annual Interest = Sum of all 12 monthly interest amounts
Balance(Year N) = Balance(Year N-1) + Annual Deposit + Annual Interest
Example: ₹1,50,000 deposited on April 1 every year at 7.1%
Year 1: Opening balance = ₹0. Deposit ₹1,50,000 on April 1.
Minimum balance every month (April–March) = ₹1,50,000
Monthly interest = ₹1,50,000 × 7.1% ÷ 12 = ₹887.50/month
Annual interest credited on 31 March = ₹887.50 × 12 = ₹10,650
Balance at end of Year 1 = ₹1,50,000 + ₹10,650 = ₹1,60,650
Year 2: Deposit another ₹1,50,000. Balance = ₹1,60,650 + ₹1,50,000 = ₹3,10,650
Interest for Year 2 = ₹3,10,650 × 7.1% = ₹22,056 (approx)
After 15 years of ₹1.5L/year deposits: Maturity ≈ ₹40.68 lakh. Total invested: ₹22.5 lakh. Tax-free interest earned: ₹18.18 lakh.
💡The "deposit before 5th" rule means you should always set up a standing instruction to transfer ₹12,500/month into your PPF on the 1st or 2nd of each month — or make one lump-sum deposit of ₹1,50,000 in April. Monthly deposits maximise your interest in each month; lump-sum in April maximises total annual interest.
Partial Withdrawal Rules — When and How Much You Can Take
PPF is a long-term instrument with a 15-year lock-in, but it is not completely illiquid. Partial withdrawals are allowed from the 7th financial year of account operation, giving you access to funds during genuine emergencies without closing the account.
Withdrawal eligibility timeline
The 7th year means after 6 complete financial years have passed. If your account was opened in FY 2020-21, you can make the first withdrawal in FY 2026-27 (from April 2026). Only one withdrawal is permitted per financial year.
Maximum Partial Withdrawal Formula
Max Withdrawal = 50% of lower of:
(A) Balance at end of 4th year preceding withdrawal year
(B) Balance at end of preceding financial year
(A) Balance at end of 4th year preceding withdrawal year
(B) Balance at end of preceding financial year
Example: Withdrawing in Year 10 (FY 2029-30)
Balance at end of Year 6 (4 years before Year 10) = ₹13,48,040 (approx, at ₹1.5L/yr)
Balance at end of Year 9 (preceding year) = ₹25,24,480 (approx)
Lower of the two = ₹13,48,040
Maximum withdrawal = 50% × ₹13,48,040 = ₹6,74,020
You can withdraw up to ₹6.74 lakh in Year 10. The remaining balance continues to earn 7.1% tax-free. Withdrawal amount is fully tax-free.
⚠️Partial withdrawals reduce your PPF balance and therefore reduce future interest earned and the final maturity amount. Only withdraw for genuine emergencies — the compounding effect of keeping the full balance for 15 years is far more valuable than the liquidity for most situations.
Loan Against PPF — Eligibility, Limit, and Interest Rate
During the period when partial withdrawals are not yet allowed (Years 1 to 6), you can take a loan against your PPF balance. This is the only way to access funds from a PPF account in the first 6 years.
| Feature | Details |
|---|---|
| Loan eligibility period | From 3rd financial year to end of 6th financial year |
| Maximum loan amount | 25% of balance at end of 2nd year preceding the loan year |
| Loan interest rate | PPF rate + 1% = currently 8.1% p.a. |
| Repayment period | Within 36 months (3 years) |
| Penalty for late repayment | PPF rate + 6% = 13.1% p.a. on outstanding loan |
| Second loan eligibility | Only after first loan is fully repaid (principal + interest) |
| Effect on PPF balance | Balance continues to earn full 7.1% while loan is outstanding |
Smart use of PPF loan: Since your PPF balance earns 7.1% while the loan costs 8.1%, the net cost of the loan is only 1% per annum. This is significantly cheaper than any personal loan (12%–24%) or credit card (36%–42%). If you need short-term funds in Years 3–6, a PPF loan is one of the cheapest borrowing options available in India.
PPF Extension After 15 Years — With and Without Deposits
At the end of 15 years, your PPF account matures. At this point you have three options — and choosing correctly can make a significant difference to your wealth.
Option 1: Close and withdraw
Withdraw the full maturity amount — completely tax-free. This is the right choice if you need the funds for a planned goal (child's education, home purchase, retirement corpus).
Option 2: Extend with deposits (most powerful)
Submit a written request within one year of maturity to extend the account with continued deposits. You continue depositing up to ₹1,50,000/year, continue earning 7.1% on the entire balance (old + new), and continue getting 80C deduction. The account continues in 5-year blocks and you can make one partial withdrawal per year of up to 60% of the balance at the start of each 5-year block.
Option 3: Extend without deposits
If you don't submit any request and don't withdraw, the account automatically extends without contributions. The existing balance continues earning 7.1% tax-free — effectively making your PPF a tax-free savings vehicle for as long as you want. No new 80C deduction, but interest remains fully tax-free. You can make one withdrawal per year.
📌For most investors who don't need the funds at 15 years, extending with deposits is the best option — you get 5 more years of EEE growth, 80C deduction, and the compounding continues on a much larger base. At ₹40 lakh balance after 15 years, 5 more years of growth at 7.1% adds approximately ₹16 lakh in tax-free interest alone — before counting new deposits.
PPF vs FD vs SIP — Which Gives Better Returns?
This is the most common comparison investors make when deciding where to park long-term savings. The answer depends on your tax bracket, risk tolerance, and time horizon.
| Factor | PPF (7.1%) | FD (7.25%) | ELSS SIP (~12% CAGR) |
|---|---|---|---|
| Return (stated) | 7.1% p.a. | 7.25% p.a. | 10%–14% CAGR (historical) |
| Post-tax return (30% slab) | ~10.1% effective | ~5.1% after tax | ~10%–12% (LTCG 12.5% above ₹1.25L) |
| Risk | Zero — govt backed | Very low (DICGC ₹5L) | Market risk — can fall 30%–50% |
| 80C deduction | Yes — up to ₹1.5L | Yes (5-yr FD only) | Yes — ELSS (3-yr lock-in) |
| Tax on interest/gains | Zero — fully tax-free | 100% taxable at slab | 12.5% LTCG above ₹1.25L/yr |
| Liquidity | Partial from Year 7 | Premature allowed (penalty) | 3-year lock-in (ELSS) |
| Lock-in | 15 years | No mandatory lock-in | 3 years (ELSS) |
| Best for | High-tax bracket, risk-averse | Short to medium term | Long-term wealth creation |
The ideal strategy: Use PPF for the risk-free, tax-free portion of your portfolio (max ₹1.5L/year) and combine with ELSS SIPs for growth. This gives you guaranteed tax-free returns on the PPF side while the SIP component delivers inflation-beating growth over 15+ years. PPF and ELSS together can maximise your 80C deduction while diversifying across risk levels.
5 PPF Mistakes That Cost Investors Lakhs
Mistake 1 — Depositing after the 5th of April and losing a full month's interest
✗ Wrong: Depositing ₹1,50,000 on April 10th every year.
✓ Right: Deposit on or before April 5th to earn interest for April.
PPF interest is calculated on the minimum balance between the 5th and last day of each month. A deposit on April 6th earns no interest for April — the interest calculation for April uses the pre-deposit balance. At ₹1,50,000 per year and 7.1% rate, April's monthly interest is ₹887.50. Lose this every year for 15 years and you forfeit approximately ₹13,000+ in missed interest. Set a standing instruction to transfer funds on April 1st — treat it like an EMI.
Mistake 2 — Letting the account go dormant by skipping the ₹500 minimum
✗ Wrong: Missing a financial year's deposit because you forgot or were short of funds.
✓ Right: Even if you can only afford ₹500 in a lean year, deposit it by March 31st to keep the account active.
A PPF account becomes dormant if the minimum ₹500 deposit is not made in any financial year. To reactivate a dormant account, you pay a penalty of ₹50 per inactive year plus the minimum deposit of ₹500 per missed year. More importantly, you lose partial withdrawal and loan eligibility during the period the account is inactive. The penalty is small but the loss of benefits can be significant. Set a calendar reminder for March 1st every year.
Mistake 3 — Closing the account at 15 years when extension would be far better
✗ Wrong: Withdrawing ₹40 lakh at 15 years and investing in FDs at 7.25% (taxable).
✓ Right: Extending for 5 more years earns ~₹16 lakh additional tax-free interest — without any new deposits.
At maturity, many investors reflexively close the PPF account without calculating the value of keeping it open. A ₹40 lakh PPF balance extended for 5 years without any new deposits earns approximately ₹16 lakh in tax-free interest at 7.1%. If that ₹40 lakh were instead put into an FD at 7.25% and you're in the 30% slab, you earn ₹14.5 lakh gross but only keep ₹10.15 lakh after tax. The PPF extension gives ₹5.85 lakh more — for doing absolutely nothing except not closing the account.
Mistake 4 — Not opening a PPF account for a minor child early
✗ Wrong: Waiting until the child is 18 to open their PPF account.
✓ Right: Open a minor PPF account (operated by parent) from birth — the 15-year clock starts immediately.
Parents can open a PPF account in the name of a minor child and operate it until the child turns 18. The 15-year maturity period starts from the account opening year. If opened at birth, the account matures when the child is 15 — just before college admission costs begin. If opened at age 5, it matures at 20. The deposits still qualify for the parent's Section 80C deduction (subject to the ₹1.5L combined limit). This is one of the most effective education planning tools available, entirely within the risk-free government-guaranteed framework.
Mistake 5 — Treating PPF as a fixed-return vehicle without factoring in rate changes
✗ Wrong: "PPF gives 7.1% for 15 years guaranteed — I'm locked in at this rate."
✓ Right: PPF rates are revised quarterly by the government. The 7.1% is the current rate — it can change every quarter.
PPF rates are not fixed for 15 years — they are reset quarterly based on government securities yields plus a spread. The rate has ranged from 7.1% (current) to 12% (in the 1980s) to 8.7% (2013). While rates haven't changed since April 2020, they can rise or fall. If rates fall to 6.5%, your long-term projection changes significantly. Always run your PPF projections at both the current rate and a conservative lower rate (like 6.5%) to see the realistic range of outcomes.
🌿 Calculate Your PPF Maturity — Free & Instant
See your exact maturity amount, year-by-year growth, withdrawal eligibility, and how PPF compares to FD returns after tax. No signup required.
Calculate My PPF →Frequently Asked Questions
The PPF interest rate for FY 2025-26 is 7.1% per annum, compounded annually. The rate is set quarterly by the Government of India based on government securities yields. It has been at 7.1% since April 2020. Interest is calculated monthly on the minimum balance between the 5th and last day of each month, and credited to the account annually on 31 March.
PPF interest is calculated on the minimum balance in your account between the 5th and last day of every month. Monthly interest amounts are accumulated and credited at the end of the financial year (31 March). This means deposits made on or before the 5th of any month earn interest for that full month — deposits after the 5th earn interest only from the following month. This makes April 5th the critical date: deposit before then to earn interest for April, which is the first month of the financial year and earns the most interest over time.
Partial withdrawal from PPF is allowed from the 7th financial year (after 6 complete financial years from account opening). The maximum withdrawal is 50% of the lower of: (a) balance at the end of the 4th year preceding the withdrawal year, or (b) balance at the end of the immediately preceding financial year. Only one partial withdrawal is allowed per financial year. Full withdrawal is only permitted at maturity (after 15 years) or on account closure under specific grounds like critical illness or higher education.
Yes — you can take a loan against your PPF account from the 3rd financial year to the end of the 6th financial year. The maximum loan is 25% of the balance at the end of the 2nd year preceding the loan year. The loan interest rate is PPF rate + 1% (currently 8.1%). The loan must be repaid within 36 months. If not repaid within 36 months, interest charges increase to PPF rate + 6% (currently 13.1%). Your PPF balance continues to earn full interest while the loan is outstanding.
Yes — PPF follows the EEE (Exempt-Exempt-Exempt) structure. The annual deposit qualifies for Section 80C deduction up to ₹1,50,000 (tax savings of ₹15,000–₹45,000 depending on slab). The interest earned every year is completely tax-free — you don't even need to declare it in your ITR. The full maturity amount is tax-free. This triple tax exemption makes PPF particularly powerful for individuals in the 20%–30% tax bracket — the effective post-tax return at 7.1% stated rate is approximately 8.9%–10.1% for these taxpayers.
Yes — at maturity after 15 years, you can extend the PPF account in 5-year blocks. You have two extension options: (1) With contributions — submit a written request within one year of maturity to continue depositing up to ₹1,50,000/year, continue earning 7.1% on the full balance, and continue claiming 80C deduction. You can make one partial withdrawal per year of up to 60% of the balance at the start of the 5-year block. (2) Without contributions — if you make no request, the account automatically continues earning 7.1% on the existing balance with no new deposits allowed. One withdrawal per year is permitted.
The minimum deposit is ₹500 per financial year. If you miss this minimum in any year, the account becomes dormant and you pay ₹50 penalty per inactive year to reactivate it. The maximum deposit is ₹1,50,000 per financial year — this is the combined limit across all PPF accounts in your name. You cannot split deposits across multiple accounts to exceed this limit. The ₹1,50,000 deposit also gives you the full Section 80C deduction.
For long-term (15+ years) investment, PPF is almost always better than FD for investors in the 20%–30% tax slab. PPF at 7.1% is fully tax-free, while FD interest is taxable at your slab rate. A 30% slab investor earning 7.25% on an FD keeps only ~5.1% post-tax (after 30% tax + 4% cess). PPF's 7.1% is equivalent to earning ~10.1% on a taxable instrument for the same investor. For short-term needs (under 5 years) or for investors in the 0%–5% tax slab, FDs may be more appropriate due to liquidity — PPF has a 15-year lock-in.
More Free Financial Tools on ToolLoom
🏦
Tool
FD Calculator
Fixed deposit maturity, interest earned, TDS deduction and senior citizen rates
📈
Tool
SIP Calculator
Monthly SIP returns, wealth growth and goal planner for mutual fund investments
📊
Tool
Compound Interest
See how money grows with different rates and compounding frequencies
💰
Tool
Income Tax Calculator
Old vs New regime comparison — 80C, HRA, 87A rebate for FY 2025-26
About ToolLoom — We build free tools for Indian students, professionals and creators. PPF rules verified against official Government of India PPF scheme documentation and Ministry of Finance notifications. PPF rate current as of May 2026 (Q1 FY 2025-26). Found an error? Email contact@toolloom.in
📅 May 2026 · Written by the ToolLoom Team · Reviewed for accuracy May 2026
📅 May 2026 · Written by the ToolLoom Team · Reviewed for accuracy May 2026