PPF or Public Provident Fund is a saving scheme managed by the Central Government, aimed to benefit small savers over the long term. It is one of the most preferred options for individuals who are looking for guaranteed returns on their savings, without any market risk. It is typically suited for small savers who want to deposit a part of their savings in their PPF account regularly and accumulate a corpus in the long run.
Interest rates offered on PPF are one of the best, compared to other fixed-income products that have government backing such as National Savings Certificate (NSC), Post Office Time Deposits, etc. Traditionally, PPF rates are kept higher than the prevalent Fixed Deposit rates offered by Banks, to encourage savings among Indian households for their long-term future.
The PPF Interest rate is set by the government, every quarter. The current interest rate for Q2 (July-September) FY 2021-22 for PPF accounts has been fixed at 7.1%.
How PPF Interest Rates have changed over the last 5 years?
The table below shows the changes in PPF rate of interest over the last few years:
|Period||Interest Rate on PPF|
|January -March 2021||7.1%|
|October -December 2020||7.1%|
How is Interest on PPF Calculated?
The returns on the PPF balance are calculated every month according to the prevailing interest rate for the quarter. However, the total interest earned in a financial year is credited to the PPF account only at the end of the financial year.
It should be noted that the PPF interest is paid on the lowest balance observed in the PPF account from the 5th to the last day of each month. For example, if the balance in your PPF account is Rs. 20,000 as of 1st April 2021 and you deposit Rs. 40,000 more on 8th April 2021, interest for the month of April will be calculated on Rs. 20,000 instead of Rs. 60,000. However, if you deposit the same amount on 4th April 2021, interest will be calculated at Rs. 60,000.
Also, PPF is compounded annually which means that the interest received on the accumulated PPF balance in the past year will be added to your principal amount and hence, will earn interest in the current year.
For a long-term investment, annual compounding can be extremely beneficial. Even after maturity, you have the option to extend the PPF with or without contribution. So, if you choose to extend your PPF for another 5 years without making further contributions, the additional returns can be substantial due to annual compounding.
What happens to the PPF account on the death of the account holder?
In case of the unfortunate demise of the PPF account holder, the nominees must get the account transferred in their name. It must be noted that a nominee cannot make any contribution to the PPF account. However, if the amount is not withdrawn, the account will continue to earn interest after death.
The PPF account is passed to the nominees in accordance with the nomination specified by the subscriber in the account opening form. If the account holder has mentioned a specific share to be allotted to the nominee (say 50% for each nominee), the account will be passed to them accordingly. Nominees will hold the PPF money in trust for the legal heirs of the deceased.
Interest on PPF Account for Minors
PPF accounts can be opened by parents/legal guardians on behalf of their minor children as well. However, the maximum contribution (to the account of the minor and the adult combined) that can be made is Rs 1.5 lakh in a financial year.
For instance, a parent cannot deposit Rs 1.5 lakh in his own account and another 1.5 lakh in his daughter’s account, whereas he/she can deposit a sum of Rs. 90,000 to his/her own PPF account and Rs.60,000 to his/her child’s account. The rate of interest on PPF accounts of minors will be the same as that for adults. It must be noted that nominations cannot be made for a minor’s PPF account.
|All about PPF||PPF Calculator||Loan against PPF|
|PPF Balance Check||Post office PPF Account||PPF Withdrawal|
Does the PPF account earn Interest after maturity?
PPF accounts have a minimum lock-in of 15 years from the date of opening the account. Once the PPF account matures after 15 years, account holders have 2 choices:
- They can withdraw the entire corpus accumulated in their PPF account
- They can extend their PPF account for 5 more years. This will enable them to continue making contributions and earn interest on their total PPF balance. But the application for extension needs to be done within 1 year after the maturity of the PPF account. Extensions for PPF account are in blocks of 5 years, but there is no cap on the number of extensions
In case of maturity, there is no action from the PPF account holder for 1 year, the account is extended as default, earning interest. However, in this case, no further contributions can be made to the PPF account
PPF Interest Rate Comparison with Other Investment Options
|Investment Instrument||Interest Rate||Lock-in Period|
|Public Provident Fund||7.1%||15 years|
|National Saving Certificate||6.8%||5 years|
|Tax Saver Fixed Deposit||3.5-7.5%||5 years|
|Sukanya Samriddhi Yojana||7.6%||21 years from the date of opening of the account or upon the marriage of the account holder, whichever is earlier|
|5 Year Post Office Time Deposit Account||6.7%||5 years|
Q. What is the PPF interest rate for senior citizens?
Ans. PPF interest rates are universally the same for all, including senior citizens.
Q. Is PPF interest taxable?
Ans. No. Interest earned on the PPF balance is completely tax-free since PPF investments come under the EEE (Exempt, Exempt, Exempt) status. This implies that contributions up to Rs.1.5Lakh to the PPF account are also tax-deductible under Section 80C. Further, the interest credited as well as the maturity amount of PPF is also tax-exempt.
Q. Why has my PPF interest not been credited?
Ans. There could be several reasons for this:
- The PPF interest rate is credited at the end of the financial year. You will not get PPF interest on a monthly or quarterly basis
- You may have contributed more than the limit of Rs. 1.5 lakh per annum. Such excess amounts will not earn any interest
- You may have contributed to the PPF account without formally extending it beyond 15 years, after its maturity. You have to fill up Form H in such cases in order to extend the account with contributions. Failure to submit this form within one year of account maturity means that the existing balance will earn interest but you cannot contribute fresh amounts. Interest on such fresh amounts will not be credited to the account.
Q. How to claim PPF in case of death of PPF account holder?
Ans. The nominees can claim the PPF account using Form G. Subscribers must attach the death certificate, succession certificate, PPF Passbook, Letter of Indemnity, and Affidavit along with the form. A succession certificate is not required if the account balance is less than Rs. 1 lakh. A legal heir can also claim the account without the presence of any nominee by producing all the documents mentioned above.