Definition
The Public Provident Fund (PPF) is a sovereign-backed, long-term savings scheme governed by the Public Provident Fund Scheme, 2019 (superseding the 1968 Scheme), issued by the Ministry of Finance under the Government Savings Promotion Act, 1873. PPF accounts are held at designated public-sector banks and post offices. The GoI sets the interest rate quarterly (currently 7.1% p.a. for Q1 FY2025-26, compounded annually); the scheme carries the sovereign guarantee of the Government of India. NRIs are not permitted to open new PPF accounts; those who held accounts before acquiring NRI status may continue until maturity on a non-extendable basis.
How it works
Annual investment range: minimum ₹500 to maximum ₹1,50,000 in up to 12 installments. The account has a 15-year lock-in from the close of the financial year of opening, extendable in 5-year blocks (with or without fresh contributions). Partial withdrawals are permitted from the 7th financial year (up to 50% of the balance at end of the 4th preceding year). Loans against the PPF balance are available from years 3 to 6. Interest is credited on 31 March each year based on the minimum balance between the 5th and last day of each month — optimal contribution date is on or before the 5th.
Tax treatment
PPF enjoys EEE (Exempt-Exempt-Exempt) status: contributions up to ₹1.5 lakh/year qualify under Section 80C; interest is fully exempt under Section 10(11); maturity proceeds are entirely tax-free. This is among the highest tax-efficiency fixed-income instruments available to Indian residents. For NRIs holding pre-migration accounts, interest accruing after NRI status may be taxable in the country of residence — applicable DTAA provisions should be verified.
Worked example
Rohan, aged 30, invests ₹1.5 lakh on 1 April each year at 7.1% p.a. over 15 years. Total outflow: ₹22.5 lakh. The maturity corpus (compounding annually) is approximately ₹40.7 lakh — entirely tax-free. Cumulative Section 80C savings at 31.2% over 15 years: ~₹7.0 lakh. Effective pre-tax equivalent yield significantly exceeds 7.1%, making PPF the benchmark fixed-income EEE instrument for resident Indians within the ₹1.5 lakh cap.
See also
- EPF — Employees' Provident Fund
- NPS — National Pension System
- SCSS — Senior Citizens Savings Scheme
- Tax Planning for NRIs
- India Post — Small Savings Schemes
Primary source
Public Provident Fund Scheme 2019 — indiapost.gov.in
Disclosure: MintByte Investment Advisers is a SEBI-Registered Investment Adviser (RIA) bearing registration number INA000017633 and SEBI Research Analyst registration number INH000014245, ARN-314872, and APMI APRN-01658. The information contained herein is for educational and informational purposes only and does not constitute investment advice or a solicitation to buy or sell any securities or investment products. Past performance is not indicative of future results. Investors are advised to read all scheme-related documents carefully and consult a qualified financial adviser before investing.