iCalculator™ IN: Public Provident Fund

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Public Provident Fund (PPF) is a long-term investment option that is supported by the Indian government. PPF offers high interest rates and tax advantages.

How to open a PPF account?

A PPF account can be opened with any of the leading banks such as SBI, ICICI, Bank of India, Union Bank of India, etc. You can also open a PPF account with the local post office. The minimum deposit for opening a PPF account is only ₹100. You will require documents such as PPF account opening form, identity proof like PAN card or driving license, address proof like telephone/electricity bill and 2 photographs.

How much can I deposit in PPF?

Every year, you need to deposit a minimum of ₹500 in your PPF account. And the maximum deposit amount is ₹100,000 per year. You don't have to deposit the amount at once. You can deposit the amount in up to 12 monthly instalments.

Is there a lock-in period for PPF?

Yes, PPF accounts are for a minimum of 15 years. Early withdrawal is possible, but not in the first 6 years. From the 7th year, you can make annual withdrawals of 50% of the balance at the end of the fourth year.

Example 1: Let's say your PPF account has a balance of ₹50,000 at the end of the fourth year. In the 7th year, you can withdraw ₹25,000. Similarly, if your PPF balance is ₹75,000 at the end of the fifth year you can withdraw ₹37,500 in the 8th year, and so on.

What are the interest rates offered by PPF?

As of October 2014, PPF offers interest of 8.7% p.a. The rate is similar to the ones offered by banks for term deposits of between 2 and 5 years. However, PPFs are a more secure option as compared to bank deposits.

Other important points about PPF

You can continue your PPF account even after 15 years
Between the third and sixth year, you can get a loan on your PPF balance
You can make PPF deposits in the name of your wife and children.

Tax treatment of PPF

PPF investments of up to ₹150,000 per year can be deducted from taxable income. Also, there is no tax payable on any interest earned or an amount withdrawn from PPF.

Example 2: Your annual income is ₹12,00,000 per year. If you invest ₹100,000 in PPF every year, your taxable income will be reduced to ₹11,00,000, thereby reducing your tax liability. Suppose you withdraw ₹10,00,000 from your PPF account after 15 years, you don't have to pay any tax on this amount.

As you can see PPF is a very tax-friendly, safe, and easy-to-maintain investment.

Use our Indian Tax Calculator to see the impact of PPF on your income taxes.