How PPF works
Public Provident Fund (PPF) is the most popular long-term tax-saving instrument in India. The Department of Economic Affairs (Ministry of Finance) notifies the interest rate every quarter, which is paid into the account at year-end. Deposits qualify for Section 80C deduction (within the combined ₹1.5 lakh cap), the interest earned each year is fully exempt from income tax under Section 10(11), and the maturity amount is fully tax-free. This is the only Indian instrument with EEE (Exempt-Exempt-Exempt) tax status alongside SSY for girl child accounts.
The maths
PPF interest is compounded annually at the rate notified for the relevant financial year. Within a year, the interest is calculated on the minimum balance between the 5th and the last day of each month, which is the GoI’s way of incentivising you to deposit before the 5th. Our calculator assumes the optimal timing (deposit before the 5th of April so the entire annual deposit earns interest for the full year).
Year-end balance = (Opening balance + Annual deposit) × (1 + r)
For ₹1.5 lakh per year at 7.1% over 15 years, the final maturity is ₹40,68,209. Of that, ₹22.5 lakh is your contribution and ₹18.18 lakh is interest — and not a single rupee is taxable.
Tenure and extensions
The base PPF tenure is 15 years. After the initial 15-year lock-in completes you have three choices, declared in writing within one year of maturity:
- Withdraw the full balance. Account closes.
- Extend in 5-year blocks WITH further contributions.You can keep contributing ₹500–₹1.5L/year. The deposits continue to qualify for 80C and the interest stays tax-free.
- Extend in 5-year blocks WITHOUT contributions.The corpus continues to earn the prevailing rate but you cannot deposit further. One partial withdrawal per year is allowed.
The calculator’s tenure field accepts any value 1–50 to let you model both the base 15-year plan and any number of 5-year extensions. For a 35-year horizon at 7.1% with ₹1.5L/year, the corpus approaches ₹2 crore — the power of compound interest in a tax-free wrapper.
Partial withdrawal & loan facility
- Partial withdrawal — allowed once per year starting from year 7 onwards. Cap = 50% of balance as on the 4th year prior, or 50% of immediately preceding year’s balance, whichever is lower.
- Loan facility — allowed between year 3 and year 6. Cap = 25% of balance as on 2 years prior. Interest = PPF rate + 1%, repayable within 36 months. Outstanding loans must be cleared before another loan is granted.
Both features make PPF more flexible than its 15-year lock-in suggests. If you ever need money in an emergency, partial withdrawal is faster than premature closure (which is allowed only after 5 years and on specified grounds: serious illness, higher education, change of residency).
EEE tax status — why PPF is special
Most savings instruments are taxed at one or more of three stages: Exempt (E) on contribution, Exempt on accumulation, and Exempt on withdrawal. PPF is EEE on all three:
- Contribution — E: deductible u/s 80C up to ₹1.5L/year.
- Accumulation — E: annual interest fully exempt u/s 10(11).
- Withdrawal — E: maturity / partial withdrawal fully tax-free.
Compare this to:
- EPF — EEE if continuous employment for 5+ years; otherwise withdrawal becomes taxable.
- NPS — EET (60% tax-free at 60, 40% must buy annuity which is taxable).
- ELSS — EEE on contribution+accumulation, but LTCG on units sold > ₹1.25L is taxable at 12.5% post Budget 2024 → effectively EET.
- Tax-saver FD — E on contribution, T on accumulation (interest taxable annually), E on withdrawal.
PPF vs ELSS — the recurring debate
Both qualify for 80C. Roughly:
- PPF — guaranteed 7–7.5% (currently 7.1%), 15-year lock-in, EEE.
- ELSS — equity, expected 11–14% over the long run, 3-year lock-in (shortest of all 80C options), EEE-but-LTCG-above-₹1.25L.
For pure tax-saving purposes, ELSS gives a better expected return with shorter lock-in. PPF is the right choice when you want a guaranteed component in your fixed-income allocation, especially in the run-up to retirement when capital protection matters more than upside.
Account opening & rules
- One account per individual (PAN). Cannot open joint accounts.
- Minor accounts allowed for children, operated by guardian.
- NRIs cannot open new PPF; existing accounts continue till maturity but cannot be extended.
- Accounts can be opened at any post office or designated branches of public-sector and major private banks (SBI, HDFC, ICICI, Axis, PNB, etc.).
- Online deposits supported via SBI YONO, ICICI iMobile, HDFC NetBanking, Axis Mobile, India Post savings app.
Worked example — ₹1.5 lakh per year, 15 to 30 years
- 15 years @ 7.1%: deposit ₹22.5L, maturity ₹40.68L (interest ₹18.18L).
- 20 years (1 extension): deposit ₹30L, maturity ₹66.58L (interest ₹36.58L).
- 25 years (2 extensions): deposit ₹37.5L, maturity ₹1.03 cr (interest ₹65.5L).
- 30 years (3 extensions): deposit ₹45L, maturity ₹1.54 cr (interest ₹1.09 cr).
Each additional 5-year extension dramatically increases the corpus because all the accumulated interest itself starts earning interest. This is the strongest argument for opening a PPF account in your early 20s and continuing through retirement.
Frequently asked questions
- Is PPF interest taxable?
- No. Interest credited each year is fully exempt under Section 10(11). The annual interest is mentioned in your AIS but not added to your taxable income.
- Can I have a PPF account in both my name and my child’s?
- Yes. You can have one PPF in your own name and operate a separate account as guardian for your minor child. The combined deposits in both accounts cannot exceed ₹1.5L per year.
- When does the rate change apply?
- The Department of Economic Affairs revises the rate every quarter (Jan, Apr, Jul, Oct). The new rate applies to interest accrued during that quarter. Historical rate has ranged from 7.1% to 12% over the past 30 years; current rate is 7.1%.
- How accurate is this calculator?
- Maturity values match India Post NSI’s published PPF tables within ₹5. Computed with high-precision decimal arithmetic — accurate to the rupee. Nine real-world fixture rows and 1,000+ property-based assertions run on every commit.
Sources
- PPF Scheme 2019 (notified by DEA, Ministry of Finance)
- Section 80C and Section 10(11), Income Tax Act 1961
- India Post NSI — Public Provident Fund
- RBI Master Direction on Government Small Savings Schemes
Disclaimer. PPF rate is revised quarterly by the Government. The calculator uses your assumed rate constant across the full tenure; actual returns will vary. Consult India Post or your bank for current rate and to open / manage an account.