What makes PPF special
Public Provident Fund (PPF) is the only investment in India that offers EEE (Exempt-Exempt-Exempt) tax status:
- Contributions exempt: Up to ₹1.5 lakh per year qualifies for Section 80C deduction (old regime only)
- Interest exempt: No income tax on annual interest earned
- Maturity exempt: The entire corpus at maturity is fully tax-free
This triple exemption makes PPF unique. Fixed deposits pay 7%+ but the interest is fully taxable. Equity funds have preferential LTCG rates but it's not zero. PPF's interest is genuinely tax-free: a 7.1% PPF return is worth 10.14% in pre-tax equivalent for someone in the 30% bracket.
How PPF interest is actually calculated
The government's official method: interest is calculated on the minimum balance in your account between the 5th and the last day of each calendar month. The interest for each month is summed and credited to your account on March 31 every year.
Key implication: Deposits made before April 5 each year earn interest for that entire financial year. Deposits made after April 5 miss one month of interest. This is why the "deposit before April 5" rule is the most actionable PPF tip.
This calculator uses the standard simplification: each year's contribution earns a full year's interest (assumes contribution on April 1). The difference is minor for planning purposes but can add up over 15 years.
The 15-year lock-in: a feature, not a bug
PPF's 15-year lock-in is often cited as a drawback. It's actually a forcing function that creates one of the best wealth outcomes in personal finance.
The numbers: ₹1.5L/year for 15 years at 7.1%:
- Total contribution: ₹22.5L
- Maturity corpus: ~₹40.7L
- Interest earned: ~₹18.2L (more than 80% of what you put in)
The compound growth in the final years is dramatic. Your corpus grows by nearly ₹3L per year in year 15, without you adding anything new. This is why extending PPF in 5-year blocks after maturity is almost always the right decision.
Extension strategies after 15 years
When your PPF matures, you have three options:
1. Withdraw everything. Fully tax-free. Good if you have a specific use for the corpus.
2. Extend without contribution. The balance continues earning interest at the current PPF rate. No new deposits. No tax. The corpus grows entirely on compounding. Best for those who don't need the money and don't want the discipline of further contributions.
3. Extend with continued contributions. Same rules as the original account. ₹1.5L annual contribution limit. Best for those who want to continue the 80C deduction benefit and build the corpus further.
Extensions can be declared in 5-year blocks (after 15, after 20, after 25 years...). You can switch strategies at each block.
PPF vs ELSS: the 80C comparison
Both PPF contributions and ELSS (Equity Linked Savings Scheme) investments qualify for 80C deduction, but they behave very differently:
| | PPF | ELSS | |---|---|---| | Return | 7.1% (fixed, reviewed quarterly) | 12–15% (expected, market-linked) | | Lock-in | 15 years | 3 years | | Capital safety | Sovereign guarantee | Market risk | | Tax on gains | Fully tax-free | LTCG at 12.5% on gains >₹1.25L | | Best for | Conservative, long-horizon savers | Growth-seekers with market tolerance |
For the 30% tax bracket, PPF at 7.1% = 10.14% pre-tax equivalent. ELSS at 12% with 12.5% LTCG on gains ≈ 10.5–11% effective after tax. They're surprisingly close for large investors: PPF with zero risk vs. ELSS with market risk but modestly better net return.
PPF partial withdrawal rules
PPF isn't completely illiquid:
- Partial withdrawals permitted from year 7 onward (after completing 6 full years)
- Maximum withdrawal: 50% of the balance at the end of the 4th year preceding the withdrawal year, or 50% of balance at the end of the immediately preceding year, whichever is lower
- One withdrawal per year permitted
- Withdrawals are fully tax-free
You can also take a loan against your PPF balance from year 3 to year 6 (at 1% above PPF rate), which is cheaper than personal loans.
One PPF account per person
Important rule: You can only have one PPF account per person (plus one in the name of a minor child, managed by a guardian). Joint accounts are not permitted. Contributions to a minor's PPF don't qualify for 80C deduction in the guardian's hands, but the interest is still tax-free.