Understanding the Public Provident Fund (PPF)
The Public Provident Fund is a statutory long-term savings scheme backed by the Government of India under the Public Provident Fund Scheme, 2019. Available across designated commercial banks (such as SBI, HDFC, ICICI, PNB, and Bank of Baroda) as well as India Post departmental offices, PPF provides sovereign capital safety combined with statutory tax exemption.
How PPF Interest Is Calculated: The 5th Day Rule
A central operational rule of the PPF scheme concerns monthly deposit timing:
- Interest is calculated monthly on the lowest balance between the close of the 5th day and the end of the month.
- Deposits credited on or before the 5th day earn interest for that full calendar month. Deposits made on or after the 6th day do not earn interest for that month and begin compounding from the following month.
- Although calculated on monthly running balances, total accumulated interest is formally credited to the account once per financial year on March 31st.
- Calculator Assumption: This calculator assumes your full annual contribution is deposited before April 5th at the start of each financial year to model the maximum compounding potential.
Key Scheme Parameters
- Contribution Limits: A minimum of ₹500 and a maximum of ₹1,50,000 per financial year (in multiples of ₹50). The ₹1.5 lakh cap is an aggregate limit per individual across their personal account and any account opened on behalf of a minor as guardian.
- Maturity Period: 15 full financial years from the end of the financial year in which the initial deposit was made (meaning an account opened in October 2026 matures on April 1, 2042).
- EEE Tax Status: Qualified deposits are eligible for tax deduction under Section 80C, the annual accrued interest is exempt from income tax, and the final maturity amount is completely tax-free.
Extension Rules: 5-Year Blocks
Upon completing the mandatory 15-year maturity term, account holders have two extension options:
- Extension with Fresh Deposits: The account can be extended in 5-year blocks indefinitely by submitting Form H within one year of maturity. You continue depositing up to ₹1,50,000 annually and earn the prevailing interest rate.
- Extension without Fresh Deposits: If no formal request is made, the account automatically continues to earn interest on the balance without requiring further contributions. You may withdraw any amount once per financial year.
Premature Closure & Partial Withdrawals
- Partial Withdrawals: Permitted from the 7th financial year onwards. The maximum withdrawal amount is capped at 50% of the account balance at the end of the 4th preceding year or the end of the immediately preceding year, whichever is lower.
- Premature Closure: Allowed only after completing 5 full financial years under specific grounds specified in the 2019 scheme rules: life-threatening medical treatment for the account holder or dependents, higher education expenses, or change of residency status. A penalty of 1% interest deduction is applied from the date of account opening.
Frequently Asked Questions (FAQ)
1. Do different banks offer different PPF interest rates?
No. PPF is a central government small savings scheme. The interest rate is notified uniformly by the Ministry of Finance across all participating banks (SBI, HDFC, ICICI, Axis, PNB) and Post Offices. The return calculation is identical regardless of where the account is held.
2. What is the maturity amount of ₹1.5 lakh deposited annually for 15 years?
Assuming a constant interest rate of 7.10% per annum with deposits made before April 5th each year, total contributions of ₹22,50,000 yield approximately ₹18,18,209 in interest, resulting in an estimated maturity corpus of ₹40,68,209.
3. What happens if I deposit more than ₹1.5 lakh in a year?
Any deposit exceeding ₹1,50,000 within a single financial year earns zero interest and is not eligible for tax rebate under Section 80C. The excess capital is refunded without interest.
4. Can I open a joint PPF account?
No. PPF accounts can only be held in the name of a single individual. Joint holding is not permitted under the Public Provident Fund Scheme rules, though nomination is mandatory.