PPF explained: yearly limit, 15-year lock-in and a Rs 1 lakh example
The Public Provident Fund, or PPF, is a government savings scheme that many salaried people and families use for long-term goals such as retirement or a child's education. It is simple, but it has rules about how much you can put in and when you can take money out. This guide explains the main ones from the official pages, then shows a worked example.
The main rules
The National Savings Institute's PPF page sets out the key features:
- The minimum deposit is Rs 500 and the maximum is Rs 1,50,000 in a financial year.
- The account matures on completion of fifteen complete financial years from the end of the year in which it was opened.
- A loan facility is available from the 3rd financial year up to the 6th financial year.
- Withdrawal is permissible every year from the 7th financial year.
- After maturity, the account can be extended for any number of blocks of 5 years with further deposits, or kept without further deposits at the prevailing rate of interest.
- The deposit qualifies for deduction under Section 80C of the Income Tax Act, and the page states that interest earned is free from income tax under Section 10 of the Act.
Tax rules can change, and your own situation matters, so check the Income Tax Department's current guidance or speak to a tax professional before relying on any deduction.
The interest rate
The PPF rate is set by the government and reviewed every quarter. The NSI rate table and the India Post savings page both show 7.1% a year for PPF, and India Post describes it as compounded yearly. The rate has been 7.1% in every quarter shown in the NSI table from April 2020 onward, but a rate that has been stable can still change in a future quarter.
A worked example
Suppose you deposit Rs 1,00,000 in PPF at the start of every year for 15 years, and assume the rate stays at 7.1% throughout. We use a simple yearly model: each year's balance, including the new deposit, grows by 7.1% once.
- You deposit Rs 1,00,000 x 15 = Rs 15,00,000 in total.
- The balance after 15 years comes to about Rs 27,12,139.
- The interest part is about Rs 12,12,139.
Using the maximum of Rs 1,50,000 a year under the same assumptions, the total deposited is Rs 22,50,000 and the balance after 15 years is about Rs 40,68,209.
These figures come from the formula balance = (previous balance + deposit) x 1.071, repeated for 15 years, and they match the Gunaka PPF calculator. Real PPF interest is worked out on balances within each month, so your passbook may differ a little from this model, especially depending on when in the year you deposit. Because the rate can also change, treat the result as an estimate, not a promised amount.
Points to keep in mind
Do not pay more than the yearly limit, because the rule is a maximum of Rs 1,50,000 in a financial year. Think about the lock-in before you start: the money is meant to stay put, with loans and partial withdrawals allowed only in the years the scheme specifies. If your goal is closer than 15 years, a different product may suit you better.
You can open the Gunaka PPF calculator, enter your yearly deposit and the current rate, and change the rate to see what a lower one would do to your balance. Gunaka gives estimates, not financial advice.
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