PPF, Public Provident Fund, Basics, PPF Account Opening, Interest Rate, Withdrawal & Tax Benefits

The purpose of the Public Provident Fund (PPF), which was first implemented in India in 1968, was to mobilise small contributions for investment and return. It can also be referred to as an investment vehicle that enables one to accumulate retirement funds while reducing yearly taxes. Anyone looking for a safe investment option to save taxes and earn guaranteed returns should open a PPF account.

How important is PPF?

The PPF (Public Provident Fund) is considered an excellent investment option, especially for people uncomfortable with taking risks. While the returns may not be very high because they depend on the market, they offer stability. Additionally, investing in PPF can help diversify your portfolio and has tax benefits.

Public Provident Fund (PPF) scheme is a long-term investment option that offers an attractive rate of interest and returns on the amount invested. The interest earned and the returns are not taxable under Income Tax. One has to open a PPF account under this scheme and the amount deposited during a year will be claimed under section 80C deductions.

Features of PPF account

Below are the essential features of PPF

• Tenure: The PPF has a minimum tenure of 15 years, which can be extended in blocks of 5 years as per your wish.
• Investment limits: PPF allows a minimum investment of Rs 500 and a maximum of Rs 1.5 lakh for each financial year. Investments can be made in a lump sum or in a maximum of 12 instalments.
• Opening balance: The account can be opened with just Rs 100 a month. Annual investments above Rs 1.5 lakh will not earn interest and will not be eligible for tax savings.
• Deposit frequency: Deposits into a PPF account have to be made at least once every year for 15 years.
• Mode of deposit: The deposit into a PPF account can be made either by way of cash, cheque, demand draft (DD) or through an online fund transfer.
• Nomination: A PPF account holder can designate a nominee for his account either at the time of opening the account or subsequently.
• Joint accounts: A PPF account can be held only in the name of one individual. Opening an account in joint names is not allowed.
• Risk factor: Since PPF is backed by the Indian government, it offers guaranteed, risk-free returns as well as complete capital protection. The element of risk involved in holding a PPF account is minimal. As the returns from PPF accounts are fixed, they are used as a diversification tool for the investor’s portfolio. 
• Tax benefit: The PPF interest and maturity amount are tax-free under section 80C of the Income Tax Act, 1961.
• Partial withdrawal: PPF amount can be withdrawn partially from the seventh financial year onwards.

What is the interest rate on PPF?

The current PPF interest rate is 7.1% p.a. that is compounded annually.

The Finance Ministry set the interest rate every year, which is paid on 31st March. The interest is calculated on the lowest balance between the close of the fifth day and the last day of every month.

Further, use our PPF calculator to figure out the returns you can expect on investing a certain amount in a PPF account.

How does the PPF account work?

A PPF account can be opened by an adult for self or on behalf of a minor. The account tenure is 15 years and the lock-in period for the account is 15 years. You can make a deposit to a PPF account ranging from Rs.500 up to Rs.1.5 lakh per financial year.

The deposit can be made in a lump sum or in instalments. There is no restriction on the number of instalments per financial year. The deposits must be made every financial year during the tenure and such deposits are exempt from income tax u/s 80C.

You are required to make a minimum deposit of Rs.500 per financial year to keep the account active. If you fail to make this deposit, the account will be discontinued. You will have to pay a penalty of Rs.50 along with a minimum deposit of Rs.500 to reactivate the account.

An interest rate of 7.1% p.a. (Q2 FY2023-24) is applied to the deposit and is compounded annually. A loan facility is available on the PPF balance. Also, you can make partial and premature withdrawals on the PPF account subject to certain conditions. Upon completing the tenure, you can choose to extend the account with or without making additional contributions. You also have the option to close the account.

PPF account eligibility

• Any Indian citizen can invest in PPF.
• One citizen can have only one PPF account unless the second account is in the name of a minor.
• NRIs and HUFs are not eligible to open a PPF account. However, if they have an existing PPF account in their name, then it shall remain active till its completion date. However, these accounts cannot be extended for 5 years as in the case of Indian citizens.

How to open a PPF account?

A PPF account can be opened with either a Post Office or with any nationalised bank like the State Bank of India or Punjab National Bank, etc. These days, even certain private banks like ICICI, HDFC and Axis Bank among others are authorized to provide this facility.

You need to submit the below-mentioned documents:

• Duly filled account opening application form
• KYC documents such as Aadhaar, Voters ID, Driving license, etc.
• Residential address proof
• Nominee declaration form
• Passport size photograph

Process to open a PPF account online:

Step 1: Log into your bank account on the internet banking or mobile banking platform.

Step 2: Select the ‘Open a PPF Account’ option.

Step 3: If the account is for self, click on the ‘Self Account’ option. If you are opening the account on behalf of a minor, select the ‘Minor Account’ option.

Step 4: Enter the relevant details in the application form.

Step 5: Key in the total amount you want to deposit in the account per financial year.

Step 6: Submit the application. An OTP will be sent to the registered mobile number. Enter it in the relevant field.

Step 7: Your PPF account will get created in an instant! Your PPF account number will be displayed on the screen. An email will be sent to your registered email address with all the details confirming the same.

Process to open a PPF account in a post office

Step 1: Get an application form from your nearest post office or online.

Step 2: Fill up the form and submit it with the required KYC documents and a passport-size photograph.

Step 3: Make the initial deposit required to open a post office PPF account. The amount can range from Rs.500 up to Rs.1.5 lakh per financial year.

Step 4: Once your application is processed, a passbook will be given to you for the PPF account opened.

Loan against PPF

• You can take a loan against your PPF account between the 3rd and 6th year. The maximum tenure of the loan is three years (36 months).
• The loan amount can be a maximum of 25% of the total available amount.
• A second loan can be taken before the 6th year if the first loan is repaid fully.

PPF amount withdrawal

As a rule, one can fully withdraw the PPF account balance only upon maturity, i.e. after the completion of 15 years. Upon completion of 15 years, the entire amount standing to the credit of an account holder in the PPF account along with the accrued interest can be withdrawn freely and the account can be closed.

However, if account holders are in need of funds, and wish to withdraw before 15 years, the scheme permits partial withdrawals from year 7 i.e. on completing 6 years. 

An account holder can withdraw prematurely, up to a maximum of 50% of the amount that is in the account at the end of the 4th year (preceding the year in which the amount is withdrawn or at the end of the preceding year, whichever is lower). Further, withdrawals can be made only once in a financial year.

Procedure for withdrawal from PPF

In case you wish to partially or completely withdraw the balance lying in your PPF account.

Step 1: Get the application for withdrawal of PPF from the bank/post office (Form 3/Form C) where you have opened the PPF account.

Step 2: Fill in the application form with relevant information.

Step 3: Submit the application to the concerned branch of the bank or post office where your PPF account lies. 

PPF Withdrawal Form

An individual must file Form 3/Form C for the withdrawal of the PPF amount. This form has 3 sections:

Section 1: Declaration section where you must give your PPF account number and the amount of money you propose to withdraw. Along with that, you also need to mention how many years have actually passed since the account was first opened. 

Section 2: Office use section which comprises details like:

• Date when the PPF account was opened
• Total balance standing in the PPF account
• Date on which the previously requested withdrawal was allowed
• Total withdrawal amount available in the account.
• The amount of money sanctioned for withdrawal.
• Date and signature of the person in charge – usually the service manager.

Section 3: The bank details section asks for the details of the bank where the money is to be credited directly or the bank in whose favour the cheque or the demand draft is to be issued. It is also mandatory to enclose a copy of the PPF passbook along with this application. 

Tax benefits of investing in PPF

PPF is one investment vehicle that falls under the Exempt-Exempt-Exempt (EEE) category. This, in other words, means that all deposits made in the PPF are deductible under Section 80C of the Income Tax Act. However, it should be noted that the maximum contribution in PPF cannot exceed Rs.1.5 lakh in one financial year.

Furthermore, the accumulated amount and interest is also exempt from tax at the time of withdrawal. It is important to note that a PPF account cannot be closed before maturity.

A PPF account, however, can be transferred from one point of designation to another. But, do remember that a PPF account cannot be closed prematurely. Only in the case of the account holder’s demise can the nominee file for the closure of the account. 

Process to close a PPF account

As per the rules governing PPF accounts, you can fully withdraw your PPF account balance only after the account completes its tenure of 15 years. Upon completion of the 15-year term, you can access the entire account balance, withdraw it fully, and close the account.

Any time before completing the full tenure of the account, you cannot withdraw the entire account balance under any circumstances. However, premature withdrawal of up to 50% of the account balance is allowed after completing 7 years. This is permitted under special circumstances only.

You can close a PPF account after completing 15 years from the date of opening the account. The procedure to close a PPF account in the post office is given below:

Step 1: Fill up the relevant information in Form C and attach your PPF passbook.

Step 2: Submit this to the relevant Post Office/bank branch where the account is held.

Step 3: Your application will be processed and the account will be closed. You will receive the payment in your savings account linked to the PPF account

Can you close PPF account before maturity?

PPF account can be closed 5 years after the account is opened in special circumstances such as life-threatening sickness faced by the account holder or dependents, paying for higher education or change in the residential status.

Process of transfer of a PPF account

You can transfer your PPF account to another branch of the bank/post office, switch from bank to post office or switch from post office to a bank. Here is the procedure.

Step 1: Visit the bank or post office branch where your PPF account is held.

Step 2: Request the application form to transfer the PPF account and fill it up with the relevant details.

Step 3: The branch representative will process your application and forward it along with the certified copy of the account, nomination form, account opening application, specimen signature, and cheque/DD for the outstanding balance of the PPF account to the new branch.

Step 4: Once the new branch receives your application and supporting documents, you have to submit a new PPF account opening application along with the old PPF account’s passbook. You may change the nominee at this point.

Step 5: Once this application is processed, your PPF account is successfully transferred to the new branch.

Participating Banks Offering PPF account

You can open a PPF account either at the post office branch nearest to you or at a participating bank branch based on your convenience. The participating banks that offer a PPF account are given below.

• Bank of Baroda
• HDFC Bank
• ICICI Bank
• Axis Bank
• Kotak Mahindra Bank
• State Bank of India
• Bank of India
• Union Bank of India
• Oriental Bank of Commerce
• IDBI Bank
• Punjab National Bank
• Central Bank of India
• Bank of Maharashtra
• Dena Bank

How to link Aadhaar with a PPF account online?

Step 1: Log on to your internet banking account.

Step 2: Click on the ‘Registration of Aadhaar Number in Internet Banking’ option.

Step 3: Enter your 12-digit Aadhaar number therein and click on ‘Confirm’.

Step 4: Select the PPF account to link it to the Aadhaar number and done.

Step 5: Click on the ‘Inquiry’ option on the homepage to check if the Aadhaar linking request is completed.

How to activate an inactive PPF account?

In order to reactivate an inactive PPF account, you can follow the steps below:

Step 1: Submit a written letter to the bank or post office branch requesting to reactivate it.

Step 2: Pay a minimum amount of Rs.500 for each year you have not made any contributions along with the penalty of Rs.50 per inactive year.

Step 3: The bank or PO will process your request and reactivate the account.

PPF vs Mutual Funds

The Public Provident Fund (PPF) is a savings scheme provided by the government, which offers guaranteed returns. However, there are other investment options available, such as mutual funds, that also offer tax-saving advantages. Mutual funds are investment vehicles that distribute funds among different types of assets, like stocks and bonds. They gather money from multiple investors and make strategic investments in securities.

Mutual funds have the potential to provide higher returns and greater liquidity compared to PPF. They are classified into different categories based on the asset class, such as equity mutual funds, debt mutual funds, and hybrid mutual funds. It's worth noting that only Equity Linked Savings Schemes (ELSS) among mutual funds are eligible for tax savings under Section 80C of the Income Tax Act.

Mutual funds have a proven history of delivering returns that have surpassed the market, making them a widely chosen investment option. Each category of mutual funds has its investment objective and level of risk.

Which is a better option: PPF or FD?

Public Provident Funds (PPF) and Fixed Deposits (FDs) provide guaranteed returns in the form of interest. However, there are significant differences between the two:

Tenure: FDs offer flexible tenures ranging from as short as 7 days to as long as 10 years, giving investors the freedom to select a duration that aligns with their preferences. On the contrary, PPF has a fixed tenure of 15 years, providing a stable and long-term savings option.

Taxation: PPF provides tax-free returns, while FDs are subject to taxation, including TDS.

Interest Rates: FD interest rates are determined by individual banks and can vary from one bank to another. Moreover, senior citizens often receive preferential treatment with higher interest rates on their FDs than regular citizens.

Loan Options: PPF allows for loans against the account, but the maximum loan amount is limited to 25% of the balance between the 3rd and 5th year. On the other hand, FDs also provide the option to take loans, allowing borrowers to access up to 90% of their deposit amount. The interest rate on an FD loan is usually 1-2 percentage points higher than the prevailing FD interest rate.

Loan Types: FDs can serve as collateral for different types of loans, such as home loans, business loans, and education loans, among others. The bank and the specific loan type determine the loan interest rate.

Is LIC better than Public Provident Fund?

There is often confusion regarding the difference between investment and insurance. Insurance protects against risks, while investment aims to secure a stable financial future. Investors must prioritise their financial well-being by maintaining an emergency fund for unforeseen expenses, obtaining insurance coverage for protection against accidents or unforeseen events, and saving for a secure future.

Having insurance is crucial for investors who have dependents relying on their income. There are different types of insurance schemes available, including term insurance, ULIPs (Unit Linked Insurance Plans), and endowment plans. However, it is advisable to prioritise a term insurance policy for adequate coverage and consider investing in a PPF for long-term savings.

A cost-effective approach to combining insurance and investment security is by opting for a term insurance policy along with a PPF. Rather than comparing the superiority of LIC (Life Insurance Corporation) and PPF, the emphasis should be on selecting an appropriate term policy that complements the PPF and meets your insurance needs.

Insurance plans with investment options like ULIPs can indeed have high expense ratios and hidden charges. Therefore, it is generally recommended to separate investment and insurance needs. Choosing a term insurance policy alongside investing in a PPF is a prudent strategy that allows individuals to enjoy the benefits of insurance and investment without unnecessary complexities. This approach ensures a clear and straightforward approach to meet both objectives effectively.

Public Provident Fund (PPF) Limitations

PPF accounts do have certain drawbacks that should be considered:

1. Lock-in Period: PPF has a lock-in period of 15 years, which is longer than other tax-saving investments like Equity Linked Saving Scheme (ELSS) with a lock-in period of just three years. This extended lock-in period can pose challenges in case of emergencies or when there is a need for funds during the investment period. As discussed earlier, premature withdrawals are allowed in PPF, but there are restrictions and regulations on when and how much you can withdraw. Therefore, it's important to ensure that you can commit to investing in a PPF account for 15 years.

2. Moderate Interest Rate: The interest rate offered on PPF accounts is not very high, especially considering it is a long-term investment scheme. In contrast, ELSS has the potential to provide double-digit returns to investors.

3. No Joint Holding: PPF accounts cannot be held jointly, which can be a limitation if you intend to open a joint account with your spouse or other family members.

4. Investment Limit: The maximum amount that can be invested in a PPF account in a year is ₹1.5 lakh. However, there is no limit to the amount you can invest in other tax-saving instruments like ELSS funds, NPS, or FDs, although the maximum tax benefit that can be claimed remains the same at ₹1.5 lacks under Section 80C.

5. NRI Restrictions: While resident Indians can open new PPF accounts, this option is unavailable for NRIs. If you had a PPF account as a resident Indian and have become an NRI, you can continue making deposits into the account, but you cannot open new PPF accounts.

Considering these drawbacks, it is important to carefully evaluate your financial goals and circumstances before investing in a PPF account.

Conclusion 

If you prefer low-risk investments and value the security provided by government-backed instruments, PPF can be a suitable choice. 

Frequently Asked Questions

What is the best age to start a PPF investment?

In the case of minors, parents are recommended to start a PPF account as soon as the baby is born so that they can take benefits of a PPF when the child becomes 15 years. For adults, the best time to open a PPF account would be when they get their first job and start earning.

What will happen if I do not contribute to the PPF account in a financial year?

When you fail to pay the minimum subscription amount of Rs.500 in a financial year, the account will be treated as discontinued, but it will not be closed. In such cases, you cannot obtain a loan or withdraw the PPF amount unless the PPF account is revived. You also cannot open another PPF account in addition to the discontinued one.

How to revive a discontinued PPF account? 

When you miss paying the minimum subscription amount for a financial year, your PPF account will be treated as discontinued. You must revive the PPF account to activate it and withdraw your PPF investment. You can revive your discontinued PPF account by paying the minimum subscription amount of Rs.500 for each missed year, along with a penalty of Rs.50 for each year of default.

Can I change the PPF account nomination? 

Yes, you can change the previous nomination by applying for a fresh nomination.

Can a female subscriber change her name in the PPF account on account of marriage? 

Yes, a female subscriber can request a change in the name in the PPF account in the event of her marriage by submitting documentary evidence. 

Can the parents partially withdraw an amount from a minor PPF account? 

Yes, parents or guardians can make partial withdrawals from a minor's PPF account after submitting a declaration that the amount withdrawn is required for the minor's use. Thus, parents can only withdraw from a minor's PPF account when that amount is used to benefit the minor, like paying for the minor's education or the medical illness of a minor.

How to convert a minor PPF account to a major?

When a minor PPF account holder becomes a major or turns 18 years old, you can submit a revised application form along with necessary documents stating the age of the account holder to change the status of the account from minor to major. The guardian can submit the application along with the account holder’s signature on the application form as an attestation. 

When to deposit money in a PPF account?

There is no specific due date as to when you should deposit money in a PPF account. However, it is beneficial for you to deposit money between 1 April and 5 April of a financial year. If it is not possible for you to make the full year’s deposit at the beginning of the year, you can make monthly deposits within the 5th of the month to earn maximum benefits. 

I don’t think I can continue to contribute to my PPF account anymore. Can I close my account?

Individuals are allowed to close their PPF account only after completing five years. Also, there are certain criteria to be satisfied in order to close the account.

Is it mandatory to withdraw the PPF account balance at the end of the 15 years?

It is not mandatory for you to withdraw the PPF balance at the end of the maturity period, i.e. 15 years. You can let the money stay in the account so that it accrues interest as long as you close the account.

Can I extend the tenure of the account for 3 years and not 5 years?

No. You can only extend the account tenure in the blocks of five years only upon maturity.

How many times am I allowed to extend the PPF tenure in the blocks of five years?

There is no upper limit on the number of times you can extend the tenure of the account as long as you extend it in the blocks of five years. However, you can only extend the tenure upon the maturity of each block.

How to open a PPF account in SBI online?

• Log in to the SBI’s netbanking portal.
• In the menu, click on ‘Deposit & Investment’ and select the ‘Public Provident Fund (PPF)’ option.
• Click on the ‘PPF Account Opening (Without visiting branch)’ option.
• Read the instructions, tick to agree to the terms and conditions and click on the ‘Proceed’ button.
• Select the savings to account to be linked with the PPF and click on the ‘Proceed’ button.
• Enter the details, such as your address, deposit amount, and personal and nomination details and click on the ‘Submit’ button.
• Your PPF account will be created in an instant and the account number will be displayed on the screen.

How to open a PPF account in HDFC Bank?

• Log in to the HDFC Bank netbanking portal.
• Click on ‘Public Provident Fund’ and select the ‘PPF Accounts ‘option.
• Click ‘Open Now’.
• Enter the bank account details from which you would like to pay for your PPF account and the PAN number.
• Verify if all the details you have entered are correct and click on the ‘Proceed’ button.
• Verify your Aadhaar number. If your bank account is already linked to your Aadhaar, you can click on ‘Generate OTP’, else you will need to update your Aadhaar online. There is also an option to e-sign with the Aadhar OTP as well.
• Now, your PPF account is instantly created and the account number is displayed.

How to know your PPF account number?

When you open a PPF account offline, the bank or Post Office will provide you with a passbook. The passbook contains all the necessary information about the PPF account, such as the PPF account number, bank/PO branch details, account balance, transactions made in the account, and others. You can get the passbook updated regularly to access the latest data. 

On the other hand, you can log into your account on the internet banking portal. On the home page, choose the PPF account to see the account details, such as the account number, account balance, recent transactions, and others.

How to check PPF account balance online?

• Log in to your internet banking account.
• Open the PPF account details to check the latest PPF balance and the recent transaction details.

How to withdraw money from a PPF account before maturity?

• Check if you are eligible for premature withdrawal.
• If you are eligible, get Form C from the bank or Post Office and fill it up with relevant details.
• If the account is in the name of a minor, you will have to provide an additional declaration stating the money you are withdrawing is for the sake of the minor and that the minor is alive.
• Submit the form and any supporting documents to the bank or Post Office branch.
• If all the information and documents you have provided are satisfactory, the bank or Post Office will process it and release the payment.

Which bank is the best for a PPF account?

PPF accounts are offered by the Government of India and are not specific to a bank. Also, all banks provide the same set of features and benefits when you open a PPF account. The interest rate is set by the government and it remains the same wherever the PPF account is held. Therefore, there is no best bank that offers a PPF account. 

For further reading, check out these articles

UIDAI 
Income Tax Guide 
Mutual Fund Investment 
ITR Filing Due Dates 
Budget 2022 Highlights 
Mutual Fund Investment Online 
Share Market Live 
SIP 
ELSS 
UAN Login

Invest in Direct Mutual Funds

Save taxes upto Rs 46,800, 0% commission

Start Investing Now