The Public Provident Fund was launched as a savings-cum-tax instrument in India with the idea of mobilizing small savings by offering reasonable returns along with income tax benefits. The current interest rate, which is for Q1 FY 2020-21 has been fixed at 7.1%.
Investments made in Public Provident Fund are offered at interest rates that are set by the central Government for every quarter (every three months) of the year.
Given below is a list of the most recent changes in the PPF interest rates :
Data Source: National Savings Institute
Annual compounding of Public Provident Fund
PPF is compounded annually which implies that the interest received on accumulated PPF balance in the past year will be added to your principal amount and hence, will earn interest in the current year.
For example- Let’s assume that you have a corpus of Rs. 1 Lakh in your PPF account and you receive an interest of 8% for the given quarter. The interest amount that you will receive comes out to be Rs. 8,000 (8% of 1,00,000). Now, for the next quarter your principal amount will be taken as Rs.1,08,000 and the interest for the next quarter will be calculated on this amount. Now, if the interest remains at 8% in the next quarter also, your interest will be 8% of Rs.1,08,000, which is Rs.8,640. This amount will then be added to your principal amount for the next quarter and so on.
Monthly Interest Calculation on PPF
The interest on PPF is paid on the lowest balance observed in the PPF account from the 5th to the last day of each month. Hence, it is important that you make your PPF contribution before the 5th of every month.
For example, if your account balance is zero until the 10th of April 2018, you will not get any interest in the given month. Your interest will start running from May 2018. On the other hand, if you have made your contribution well before the specified date, the interest earned will be more.
Interest on PPF after Death
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 additional contributions to the account, in the name of the deceased. However, if the amount is not withdrawn, the account can continue to earn interest after death.
The PPF account passes 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 upon Maturity
The interest earned on a PPF account upon maturity is the weighted average of the interest rates that have been declared in all the years in which the account was operational. For example, if the interest rate at PPF maturity is 8% but the interest rate in previous years was 7%, the final rate of interest would be taken as the weighted average of these two rates.
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 in such cases should be 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 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 nomination cannot be made for such minors’ accounts.
Here’s how you can open a PPF account- Documents Required for Public Provident Fund (PPF) Account Opening
Interest on PPF Account for NRIs
NRIs cannot open PPF accounts. However, a resident Indian who has become an NRI after opening a PPF account can continue the account till maturity. Such an account will earn the same interest rate as that for resident Indians.
Interest on PPF Account for Senior Citizens
Senior citizens get the same interest rate on the PPF as younger Indians. However, they can earn higher interest rates on senior citizen oriented products such as SCSS (Senior Citizens Savings Scheme) and Pradhan Mantri Vaya Vandana Yojana (PMVVY).
Eligible Banks for Opening a PPF Account
Even though PPF is a savings scheme launched by the government of India, all private and public banks do not offer this facility.
Given below is a list of the private sector banks that allow you to open a PPF account-
- Axis Bank
- ICICI Bank
- HDFC Bank
Given below is a list of the public sector banks that allow you to open a PPF account-
- State Bank of India
- Canara Bank
- Indian Bank
- UCO Bank
- Bank of India
- Bank of Baroda
- Allahabad Bank
- Central Bank of India
- Union Bank of India
- Andhra Bank
- Corporation Bank
- Dena Bank
- Indian Overseas Bank
- Syndicate Bank
- UCO Bank
- United Bank of India
- Vijaya Bank
- IDBI Bank
Given below is a list of a few popular banks that do not allow you to open a PPF account-
- DBS Bank
- IDFC Bank
- Kotak Bank
- RBL Bank
- Citi Bank
- Standard Chartered
- Federal Bank
- Yes Bank
- IndusInd Bank
- Bandhan Bank
- Karur Vysya Bank
- South Indian Bank
Difference between PPF and GPF
GPF or General Provident Fund is only open to Government employees, wherein employees of the public sector are given an option to credit a certain portion of their salary to the GPF accounts.
PPF, on the other hand, is open to all Indians, from all sectors (public, private or self employed).
PPF Declaration in Income Tax Return (ITR)
The interest earned on PPF is exempt from taxation. However, it must be declared in the Income Tax Return filed for that specific year. You can also refer to your PPF passbook or online statement to obtain the figure for PPF interest earned.
Ques. When does interest get credited to a PPF Account?
Ans. Interest is credited to your PPF account at the end of each financial year. For example, interest for April 2019 to March 2020 will be credited to your PPF account on 31st March 2020.
Ques. Is PPF interest taxable?
Ans. No. Interest earned on 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 maturity amount of PPF are also tax exempt.
Ques. How to claim PPF amount after death?
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. 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.
Ques. 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.
Ques. What was the maximum PPF rate offered?
Ans. The PPF interest rate was fixed at 12% from 1986 to 1999. This was the highest rate offered. However, the inflation level and overall interest rates in those years were also different from the present ones.