What makes PPF special
The Public Provident Fund is a government-backed savings scheme with a benefit almost nothing else offers: EEE tax status — Exempt, Exempt, Exempt. Your deposit qualifies for a Section 80C deduction (old regime), the interest earns tax-free, and the entire maturity amount is tax-free too. A 7.1% tax-free return equals roughly 10.2% from an FD for someone in the 30% bracket.
The interest rate is set by the government every quarter. It has stayed at 7.1% since April 2020 — including the current July–September 2026 quarter — but it can change, so long-term projections are estimates.
The rules that matter
PPF has more rules than most products — these are the ones that affect your money:
- Deposit between ₹500 and ₹1.5 lakh per financial year. Anything above ₹1.5 lakh earns no interest and no deduction.
- The account matures in 15 years, and can then be extended in 5-year blocks — with or without fresh deposits — indefinitely.
- Interest is calculated on the lowest balance between the 5th and the last day of each month. Deposit before the 5th (ideally the 5th of April for the whole year) to earn interest on it for that month.
- Partial withdrawals are allowed from the 7th year; loans against the balance from the 3rd to 6th year. Premature closure is possible after 5 years only for specific reasons, with a 1% rate penalty.
- One account per person (plus guardian accounts for minors). PPF balances are also protected from attachment by courts for debt recovery.
What ₹1.5 lakh a year becomes
Investing the full ₹1.5 lakh at the start of every year at 7.1% grows to about ₹40.7 lakh in 15 years — you deposit ₹22.5 lakh and earn roughly ₹18.2 lakh in tax-free interest. Extend the same habit to 25 years and the balance crosses ₹1 crore, of which almost two-thirds is interest.
The lesson from the numbers: PPF rewards the extension years disproportionately, because compounding does its heaviest lifting after year 15. If you don't need the money at maturity, extending in 5-year blocks is usually the best fixed-income decision available to an Indian saver.
Frequently asked questions
›What is the current PPF interest rate?
7.1% per year, compounded annually, for the July–September 2026 quarter. The government reviews the rate every quarter; it has been unchanged at 7.1% since April 2020.
›Is PPF completely tax-free?
Yes — PPF has EEE status. Deposits qualify for Section 80C deduction (old regime only), interest is tax-free, and the maturity amount is tax-free. It is one of the very few instruments where the entire return escapes tax.
›Can I withdraw from PPF before 15 years?
Partially, yes. From the 7th financial year you can withdraw up to 50% of the balance at the end of the 4th preceding year, once per year. Full premature closure is allowed after 5 years only for medical emergencies, higher education or change of residency status, with a 1% interest penalty.
›What happens to my PPF after 15 years?
Three choices: withdraw everything tax-free, extend for 5 years with fresh deposits (submit Form H within one year), or extend without deposits — the balance keeps earning tax-free interest and you can withdraw once per year. Extensions can repeat indefinitely.
›When is the best time to deposit in PPF?
Before the 5th of the month, because interest is calculated on the lowest balance between the 5th and month-end. The single best move: deposit the full ₹1.5 lakh by April 5th, so the entire amount earns interest for all twelve months of the financial year.
›Is PPF better than an FD?
For long-term money, usually yes: 7.1% tax-free beats a 7% FD whose interest is taxed at your slab (worth only about 4.9% post-tax in the 30% bracket). The trade-offs are the 15-year lock-in and the ₹1.5 lakh yearly cap — FDs win for shorter horizons and larger amounts.