PPF or Public Provident Fund Account: A Complete Guide

PPF Deposit Limit

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

What is PPF Account?

Public Provident Fund (PPF) scheme is a long-term and safe investment avenue offering an attractive rate of interest and returns. In a PPF account, the money is deposited every month, and interest is compounded. This interest earned and the returns are both tax-free. In this way, PPF is a big favorite with a small saving amount.

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 the Central Government associated with it.

Let us look at some of the PPF Account Details

The above-mentioned are the features/ PPF account details in a nutshell. We shall look into these PPF account details in-depth in the article below.

Avenues for Opening a PPF Account

You can open a PPF account online at the nationalized public sector banks in India, post offices, and other financial centers like private banks. You will have to submit the relevant and desired documents, the initial amount, and you will also have to fill and submit the relevant form for the purpose. One can open a PPF account online by logging into the bank account on the internet banking or mobile banking platform or at the post office.

PPF Interest Rate

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. The PPF interest rate for 2022-23 is currently compounded at 7.1% annually. 

The Finance Ministry sets the interest rate every year, which is paid on 31st March. 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.

More About PPF Interest Rates

• The PPF interest rate 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.

Type of Interest Accrued on the PPF Investments

The interest rate provided by the Government of India towards the PPF scheme 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 principal 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. 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 / Tenure

   The tenure of 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 successfully completing 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 the 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 a 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 also be multiple deposits 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 a maximum of 12 times during a given financial/fiscal year. 

6. Ways of Depositing Money into Your PPF account

   There are multiple ways through which an individual can deposit money into their account. These include PO (postal order), cheque, cash, and online fund transfers. 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 the 15th year or after maturity.

In case a person wishes to do a premature withdrawal, it is possible to the extent of 50% of the amount that is available in the account at the end of the 4th day. Additionally, withdrawals can be made only once in a financial year.

1. Eligibility Requirements

   • Indian residents over 18 years of age can open a PPF account for themselves, 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

   • An online or offline account 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.

2. Forms Associate with PPF Account

   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 tenure of the PPF Account, once its maturity has arrived.

3. 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 get 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 for your PPF online account.

4. Check PPF Account Balance at Post Office

   If you have your 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 updating your PPF passbook.

   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

The 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:

• PPF premature withdrawals are permitted only after the account has completed the tenure of 7 years from the 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 is 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:

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 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.

Procedure for withdrawal from PPF

Follow the procedure below if you wish to withdraw the PPF balance partially or completely.

Step 1: Get the PPF withdrawal application form (Form 3/Form C) from the bank/post office.

Step 2: Fill in the details on that form.

Step 3: Submit the application to the concerned branch where your PPF account lies. 

Opening PPF Account Online?

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

Step 1: Log on to the net-banking portal of the bank and click on 'the PPF Account Opening' option. 

Step 2: Choose the specific bank account from where you want your contributions to be deducted.

Step 3: The details registered with the bank will be automatically shared with your PPF account opening form.

Step 4: Once your details are updated, the process of Aadhaar e-verification will start. 

Step 5: Enter the Aadhaar details

Step 6: You will receive an OTP on your registered mobile number.

Step 7: Enter this OTP in the given box and your account will be opened.

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

You need to fill out 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 the bank branch where you want your PPF account to be opened.

Process of Opening PPF Account in a Post Office

Step 1: Get an application form from your nearest post office or online.

Step 2: Fill out and submit the form with the required KYC documents and a photograph.

Step 3: Make the initial deposit required to open the account.

Step 4: After the application is processed, a passbook will be given to you.

How to Know Your PPF Withdrawal Status?

A 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%.

Loan Against PPF Account

A loan against a PPF account can be taken between the 3rd and 6th year. The loan is granted for a maximum tenure of 36 months. The maximum loan amount granted is 25% of the total available amount. If one wishes to take a second loan, it can be taken before the 6th year and only if the first loan has been repaid fully. 

PPF Pros and Cons

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 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 and Maturity

   The interest that you earn is exempted from the tax u/s 80C of the Income Tax Act, 1961. The amount you get during the maturity of your PPF scheme is also exempted from your tax liability.

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. Online Maintenance

   You can maintain an online account 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.

7. Free from 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 the 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, if 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 at Rs. 20,000 (and not Rs. 22,000).

4. Lacks 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, and 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 PPF 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. 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 PPF 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.

Steps to Reactivate the PPF Account

Step 1: Submit a written letter to re-active the PPF account to the post office or the bank where you held the account.

Step 2: Pay a minimum amount of Rs.500 with a penalty of Rs. 50 for every inactive year.

Step 3: The post office or the bank will process your request and reactivate the account.

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

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

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 had opened a PPF account before obtaining the NRI status can continue with the account investments until 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 an 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 an 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. 

Documents That can be Used as Identity Proof and Address Proof

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

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 PPF account.

• The nomination form, if there are nominees.

• For minors, age proof will also be required.

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

FAQ's