PPF or Public Provident Fund Account: A Complete Guide

It is mentioned in Section 80C of the Income Tax Act, 1961 that the interest earned during the PPF tenure is exempted from one’s tax liability. The PPF deposit up to 1.5 lakh is liable to the exemption and the amount to be received on maturity is also tax-free. Hence, the PPF scheme undoubtedly is one of the most tax-efficient and popular money-saving schemes in India.

PPF Account Details

The PPF (Public Provident Fund) is a popular savings-cum-tax efficient avenue, which is backed by the Government of India. The scheme was introduced by the National Savings Institute in 1968. The PPF scheme was launched to rationalize small investments by offering reasonable returns on them. The scheme offers multiple tax benefits and has a guarantee of Central Government associated with it.

Avenues for Opening a PPF Account

You can open a PPF account online at the nationalized public sector banks in India, at the post offices, and other financial centers like private banks. You will have to submit the relevant and desired documents, the initial amount, and will also have to fill and submit the relevant form, for the purpose.

Interest Rate on PPF Deposits

The new budget announced by the Finance Minister substantially impacts the financial market. Various financial plans are affected and witness changes in terms of the rate of interest, service tax, return, etc. PPF Scheme is also no exception. PPF interest rate is currently compounded at 7.1% annually.

The PPF interest rate has remained constant since April 2020 till date at 7.1%. The interest rates for the PPF deposits are not like those of FDs or Fixed Deposits. While the fixed deposit interest rates do not vary, the interest rate for the PPF deposits varies for each consecutive year. All PPF deposits get the same interest rate benefits as per the new budget announcement.

Type of Interest Accrued on the PPF Investments

The interest rate provided by the Government of India, towards the PPF accounts, is Compound Interest, and not simple interest. Compound interest (interest on interest) is more fruitful for the investor, as each year the principal increases, and the interest is again calculated on the increased principal (in simple interest, the principle remains the same for each successive year).

1. Investment Amount / Monetary Deposit

   The sole aim of the PPF scheme is to make Indians save more money, and hence all steps have been taken by the Government to ensure that the scheme is appealing to the general people. One can deposit a very low amount of money in the scheme.  

   The individual can deposit a minimum amount of Rs.500 in the PPF scheme. The maximum limit of the deposit is now Rs.1,50,000. The upper or the maximum deposition limit has been increased very recently, from 1 lakh to 1.5 lakh. An individual cannot deposit more than Rs.1.5 lakh to a given PPF account, in a year.  The increase is provided to make the scheme more lucrative to people.

2. Period

   The PPF account of any given individual has 15 years. The account is active for this duration. Its validity can also be extended, if the individual so desires, after successful completion of the time frame. The extension is for five years, at each renewal. Investors can also add more money to the account, if they wish, after extension.

3. Tax Exemption

   Under Section 80C of the Income Tax Act, an individual can get an exemption of up to Rs 1.5 Lakhs, for the PPF deposit.

   Note: The individual can deposit the money in the name of self, child, or spouse.

4. Account Opening Charges

   The PPF account opening charges are just Rs. 100. This one-time amount has to be paid by the investor, over and above the minimum amount of Rs 500, which would be the first deposit into the scheme.

5. Deposit Frequency

   Each year, the investor has to submit the minimum amount of Rs. 500 in the PPF account, to keep it active. The frequency has to be maintained for 15 years so that no year passes without a deposit.

   There can be multiple deposits as well so that the total amount deposited during a given financial year does not cross the Rs.1.5 Lakhs limit. An individual can deposit money into a PPF account, a maximum of 12 times, during a given financial/fiscal year. Also, not more than two deposits can be made to the PPF scheme, during any given month.

6. Ways of Depositing Money Into Your PPF account

   There is an ample number of ways, through which an individual can deposit money to their account, or the PPF account of somebody else, (including a child, spouse, and member of the family).

   These include PO (postal order), cheque, cash, and online fund transfers. You can deposit money in a given PPF account a maximum of 12 times during a given financial year, via any of these means. These days, PPF online transfer is a more convenient option.

PPF Withdrawal: Partial and Full

You can make partial withdrawals from your PPF account, from the 7th financial year of the purchase of PPF. Complete withdrawal can only be made from the account, after the completion of 15th years, or after maturity.

Features and Benefits

• Partial withdrawals

• Tax exemption

• Compound interest

• Provision of extension after maturity

• Multiple modes for depositing money

• Invest as low as Rs.500

• Secure and trustworthy, PPF being a government initiative

• One of the best schemes for long-term investments

• Useful for planning for retirements, education, and marriage purposes, among others.

• The policy amount is never available to the creditors, and cannot be attached to any court order.

• Easy to access, as the PPF account opening facility is available at multiple venues, nationwide.

• Scheme available at all government approved banks

Eligibility Requirements

• Indian residents, over 18 years of age, can open the PPF account, for themselves, or anyone else in their family or on behalf of a minor.

• An individual cannot open a joint or a HUF (Hindu Undivided Family) account

• No upper age limit for opening the account

• A PPF account online or offline can also be opened for a minor child or kid, below 18 years of age. In this case, the total PPF investments in the account of the minor and guardian/minor cannot exceed 1.5 lakhs, for a given financial year. Also, grandparents cannot open a PPF account online or offline for their grandchildren.

• An option to open the account online, wherever the bank offers the services.

Forms Associate with PPF

Some forms are associated with the PPF scheme. This includes:

• Form A: For opening the Public Provident Fund account.

• Form B: To make a deposit into the account, or to repay the loan taken.

• Form C: For obtaining partial withdrawals

• Form D: To request a loan against the PPF account

• Form E: For making a nominee

• Form F: To make any change to the information related to the account

• Form G: To claim the funds on the account, by a legal heir or a nominee

• From H: To extend the period of the PPF account, once its maturity has arrived.

How to Maximize the PPF Gains?

For interest purposes, the bank considers the deposits made from the 1st to the 5th of any given month. Hence, to gain maximum interest, you should deposit before the 5th of any given month.

How to Check Your PPF Account Balance Online?

PPF, as you know, is backed by the government of India, and is amongst the safest investment options in the country today. Offering a 7.1% rate of interest as of November 2021, over 15 years, both principle and interest earned on PPF investment are completely tax-free.

Despite this lock-in period, PPF allows partial withdrawal starting from the 7th year. And, if you need to check PPF balance online or offline, you have the following ways, based on if you have your PPF account online at a bank or offline at the post office:

Check PPF Account Balance at a Bank

It can be pretty easy for you to check your PPF balance if your account is at a bank. You can easily log into the e-portal of the bank through your internet banking credentials. You can also have a look at your PPF passbook, in case you have to see each PPF online contribution you made over the year and interest earned annually. To do that, you must have a savings account with the same bank as your PPF account. However, some banks may allow you to link your PPF account details with your existing savings account with the other bank for the ease of PPF online contribution. Once your PPF account online is linked to your savings account, you can easily transfer funds to your PPF online account whenever you need to.

In case you don’t have access to your Internet banking portal, make sure to get it asap. Once you got your bank e-portal activated, you can easily check and transfer funds, view monthly statement(s), pay bills online, submit and check the status of your loan application, and make the online purchase(s) when required to your PPF online account.

Check PPF Account Balance at Post Office

If you have your PPF account at a post office, then you cannot view your account balance when you need to, unless you visit the same post office branch where you opened your PPF account. You can view your PPF account details and balance only after getting your PPF passbook updated.

Also, to deposit money in your PPF account opened at a post office, you need personally to visit that post office branch.

PPF Withdrawal Rules & Process

A PPF account has a lock-in period of 15 years. It only attains its maturity once it completes this lock-in period of 15 years. However, the scheme also allows premature withdrawals in certain emergencies. Following is the list of rules associated with premature withdrawals in PPF accounts:

• PPF premature withdrawals are permitted only after the account has completed the tenure of 7 years from the PPF account opening date. Here, it’s important to note down that the withdrawal can only be made at the beginning of a financial year.

• The amount that can be withdrawn has a limit assigned to it. Whichever of the following will be the lower, will be the withdrawal amount limit:

• Half of the closing balance after the 4th year before the year when your money is being withdrawn.

• 50% of the closing balance of the previous year

• If you have taken a loan against your PPF account, the loan amount will be deducted from the amount you are going to withdraw.

• Only one withdrawal is permitted for a financial year.

Rules for Premature Withdrawal from PPF Account:

• The PPF scheme allows partial withdrawal once your PPF account has completed 5 fiscal years.

• This facility of PPF premature withdrawal comes in handy in cases such as higher education of your kids and medical treatments. 

• As per the PPF premature withdrawal rules, you can withdraw only 50% of the amount you have accumulated in your account.

• However, once your PPF account has completed 7-12 years, the withdrawal limit goes higher.

• You can use Form C of the particular bank through which you have got your PPF account for premature partial withdrawals.

How to open PPF Account Online?

A PPF account can now be opened online. Some of the conditions you need to keep in mind while opening for a PPF account online through a bank are:

• You should have a savings account with the bank.

• You should have activated your net banking or mobile banking services with the bank.

• Your Aadhaar card must be linked to your bank account.

• The mobile number you have shared with the bank should be linked to your Aadhaar.  

The Process of Online PPF Account opening:

You can log on to the net-banking portal of the bank and click on ‘the PPF Account Opening' option. You should choose the specific bank account from where you want your contributions to be deducted. Your details registered with the bank will be automatically shared with your PPF account opening form.

Once your details are updated, the process of Aadhaar e-verification will start. After entering your Aadhaar number, you will receive an OTP on your registered mobile number. You will need to enter this OTP in the given box and your PPF account will be opened.

In Case Your Bank Doesn’t Offer a Complete PPF Account Opening Process:

You need to fill the online application form and submit it. Once submitted, you can get its print-out, sign it and submit it along with your KYC documents at your bank branch where you want your PPF account to be opened.

How to know your PPF withdrawal status?

The PPF account, once opened, cannot be closed before the maturity date or tenure of 15 years. In other words, you can withdraw your money after a waiting period of 15 years. However, the scheme allows partial withdrawals right from the 7th year. You can also avail of the loan facility from the 3rd year.

If you need to check the PPF withdrawal status online, you can log into your bank account and have a look at your PPF online passbook. However, if you need to check your PPF account details and your account is at a post office, you are not provided with the very facility. You need to visit the post office to have access to your PPF withdrawal status.

PPF Rules and Interest Rate Fluctuations

Public Provident Fund or PPF scheme is an investment instrument backed by the government of India. The interest rate offered by PPF is subject to change quarterly, and as per the recent revision in PPF rules, the updated interest rate is 7.1%.

• The interest rate on the PPF scheme is calculated every month and that too on the amount lowest between the 5th and the last day of the month.

• The interest applicable is credited at the end of the year. Therefore, it is recommended to contribute to your PPF account before the 5th of the month.

• You are allowed to make only 12 transactions in a calendar year and the maximum amount you can deposit in your PPF account cannot exceed 1.5 Lakh in a year.

• PPF account has a lock-in period of 15 years.

• Partial withdrawal is allowed from the 7th financial year

• Loan against PPF scheme can be availed from the 3rd financial year

Pros and Cons of PPF Scheme

PPF is one of the most appealing saving schemes, which has been gaining importance over time. When PPF influences every walk of life, it is recommended for all taxpayers. A few of the appealing advantages of PPF are listed below:

1. The Safest Plan

   PPF is initiated by the government, so there is no possibility of someone running away with your money. It is confirmed that you will get your assured amount at the time of maturity. So, investing in PPF is the safest decision.

2. Great Returns

   By investing in PPF, you can earn 7.1% interest per annum. But, because of the tax rebate facility, your actual return of 7.1% works out to be higher.

3. Compound Returns

   Scope for earning compounded returns. That means you earn interest not only on the deposit you make but also on the interest earned over the year(s).

4. No Tax on Interest Earned

   The interest that you earn from a PPF account is exempted from the tax u/s 80C of the Income Tax Act, 1961.

5. Flexible Investment

   You can invest up to a maximum of 1.5 lakh per annum towards your PPF account. The best part is that you can deposit the money in 12 installments. The minimum amount that you can invest in their PPF account is as low as Rs. 500.

6. No tax on Maturity Amount

   The amount you get during the maturity of your PPF scheme is also exempted from your tax liability.

7. Online Maintenance

   You can maintain a PPF account online as well. With internet banking booming, the use of online banking services has become convenient these days. You can maintain your PPF account online by making deposits, calculating your interest using the PPF calculator online, or keeping yourself updated with every new announcement.

8. Free of Stock Market Influence

   In PPF, your investment wouldn't be affected by stock market performance, as the investment is not exposed to equities. This is just the opposite in the case of mutual funds or SIPs.

Disadvantages of PPF Scheme

Despite all the pros of PPF, it is not completely free of criticism. Public Provident Fund also has some cons that we can’t deny. To name a few:

1. Interest Rate is Unstable

   The tend-to-change interest rate might affect the maturity amount. If we notice, the interest rate of the PPF scheme has not been fixed. It kept changing over time and is declining.

2. Lengthy Tenure

   15 years is a long period, but the last contribution is made in the 16th financial year. You will not earn interest on the investment you have made on the last day of your account.

3. Interest on the Lowest Amount Only

   The PPF rate of interest is calculated on the lowest balance between the 5th and last day of the month. For instance, you have 20,000 in your PPF account and you deposit an additional amount of 2000 after the 5th of a month, your interest will be calculated on Rs. 20,000 (not on Rs. 22,000).

4. Lacks in Liquidity

   It is not the same as mutual funds and is hereby lacking liquidity. Your money is stuck for years on end and not as easy as selling shares or units of mutual funds. 

   So, PPF has its share of pros and cons equally, when compared to some other plans like FDs, ELSS mutual funds. However, it is one of the preferable schemes until now due to its tax benefits. But it is always advisable to take experts’ advice whenever you are open to investing in a savings plan.

How to Reactivate PPF Account when it is Inactive

The PPF account online or offline may get inactive when you fail to deposit a minimum of Rs. 500, in a given financial year, during the 15-year time frame of the account. To reactivate the account, you will have to pay a fine of Rs. 50, for each year when the minimum deposit has not been made, into the account. Note that no loan, or interest, can be availed for the period during which the account has been inactive.

The account cannot be closed for 15 years. Even if the account gets inactive, the amount (including the investment and the interest) is released to the account holder, or the nominee, only after 15 years i.e. on account maturity.

Online PPF Calculator

The online PPF Calculator is a versatile, widely-accessible financial tool, which helps you to:

• Calculate the returns that you will get on your investments

• Plan your investments and invest towards a desired financial goal

• Know your withdrawal limits

• These and other benefits make the calculator an effective and popular online tool.

How to Calculate PPF Account Interest Rate?

A PPF account holder can calculate the PPF interest rate on the least balance in the account between the 5th to the last day of each month. That’s why in case one wants to deposit a larger sum for any period of the year, one should ensure that they invest on or before the 5th of a certain month so that they can get the benefit of interest on the whole month.

PPF Calculation Formula

The following formula is used to calculate PPF account amount:

FV = P [({( 1 + i ) ^n} – 1) / i ]

Here is the elaboration:

FV = Future Value (The amount to be received after maturity)

P = Annual installments by the investor

i = The rate of interest periodically

n = Total number of years

Let us understand the formula with an illustration:

For example, Mr. X deposits Rs. 1,10,000 annually into his PPF Account and avail a loan on the same. The interest rate is taken at 7.90% (the current rate of interest being 7.10%)

Exclusions

• No joint account allowed

• Maximum investment for a given financial year is Rs 1, 50, 000 lakhs only

• Non-Resident Indians cannot open a PPF account. Those NRIs who have opened a PPF account, before they obtained the NRI status can continue with the account investments until its maturity. But they can extend the account tenure after maturity, i.e. after 15 years.

• The PPF online or offline account can no longer be opened by the HUFs.

• The restriction has been in place since the year 2015. Those who have opened the account before this period can continue with it until maturity. The HUF account will also not be extended after maturity. 

• People from their countries, or foreigners to India, cannot open the account. 

Documents Required for Opening a PPF Account 

You will require identity proof, signature proof, and address proof for opening a PPF online or offline account. Any documents used should not be expired, and should be valid, as per the time references. 

1. Documents that can be used an Identity Proof and Address Proof

   PAN Card, Passport, Aadhar Card, Voter’s ID, Driving License, and Ration Card

2. Other documents that provide for the opening of a PPF account

   The bank account statement, signed checks, employer’s letter, utility bills

   Other than the identity and address proof, you would also require

   • Photographs

   • Duly filled account opening form. You can get the form at the bank or the post office where you wish to open the account.

   • The nomination form, if there are nominees.

   • For minors, age proof will also be required.

   • The bank may also require any other/additional document.