Public Provident Fund

The Public Provident Fund (PPF) is a government-backed savings scheme that allows individuals to deposit money and earn interest over time. It offers fixed returns and tax-free growth, making it an ideal long-term investment.

A Public Provident Fund (PPF) account can be opened by an adult for themselves or on behalf of a minor. The account comes with a fixed term of 15 years, which also serves as the lock-in period. You can contribute between Rs. 500 and Rs. 1.5 lakh each financial year. These contributions can be made either in one lump sum or in multiple instalments throughout the year, with no restriction on the number of deposits. To keep the account active, you must make contributions every financial year, and these deposits are eligible for tax exemptions under Section 80C.

The account requires a minimum annual deposit of Rs. 500. Failing to meet this requirement will result in the account becoming inactive. Reactivation will require a penalty of Rs. 50 in addition to the minimum deposit of Rs. 500. The interest rate for PPF accounts is currently 7.1% per annum (as of Q2 FY2024-25), compounded annually. You can also avail of a loan against the balance in the account, and partial withdrawals are permitted under specific conditions. Once the 15-year term ends, you can either extend the account with or without making further contributions or close it entirely.

Key Features of PPF

Tenure: The PPF has a lock-in period of 15 years, which can be extended in blocks of 5 years.
Investment Limits: Minimum deposit is ₹500, and maximum is ₹1.5 lakh per year.
Interest Rate: Currently 7.1% per annum, subject to revision.
Tax Benefits: Contributions are tax-deductible under Section 80C, and the interest earned is tax-free.
Loan and Withdrawal Facilities: Loans available from the 3rd to 6th year; partial withdrawals from the 7th year.
Account Holding: Available for individuals and minors, but not for joint accounts.
Nomination Facility: Account holders can nominate beneficiaries.

Eligibility Criteria

Indian residents can open a PPF account.
Minors can have a PPF account under parental supervision.
NRIs and HUFs are not eligible.

How to Open a PPF Account?

Visit an authorized bank or post office.
Fill out the application form.
Submit KYC documents (Aadhaar, PAN, etc.).
Make an initial deposit (minimum ₹500).

PPF Maturity and Extension Options

Withdraw the full balance after 15 years.
Extend the account with or without additional contributions.
Premature closure allowed after 5 years for specific reasons.

Guidelines for PPF Account Nomination

You can nominate one or more individuals for your PPF account, and if you choose multiple nominees, you’ll need to specify the percentage share for each. However, nomination is not allowed for a minor's PPF account. You can nominate family members such as parents, spouses, children, relatives, or even friends. To add a nominee, you’ll need to submit Form E. This nomination can be made at any time during the life of the account. If you wish to change, cancel, or update the nomination, you can do so by filling out an "Application for Change of Nomination." The nomination form must be signed by the account holder and two witnesses, though the nominee does not need to sign. Once the form is completed, it should be submitted to the relevant bank or post office branch.

Loan Against PPF

You are allowed to borrow a loan against your PPF account between the third and sixth year of your contributions. The loan duration can be a maximum of three years, and the loan amount cannot exceed 25% of your PPF balance at the time of applying. If you fully repay the first loan, you can apply for a second loan before the sixth year begins.

Early Closure of PPF

You can close your PPF account early after 5 years, but only under specific situations. Early closure is allowed if you or your family members (spouse, parents, or children) are dealing with a life-threatening illness, and you provide medical documentation. It’s also allowed if the funds are needed for higher education, either for you or a minor account holder, with supporting documents like an admission letter and fee receipt from a recognized institution.

PPF Withdrawals

Once your PPF account matures after 15 years, you can withdraw the entire balance, which includes both your contributions and the interest accrued. If you need funds before maturity, you can start making partial withdrawals from the 7th year. A partial withdrawal of up to 50% of the account balance is allowed at the end of the 4th year, but you can only use this option once.

PPF vs Other Investment Options

Feature	PPF	Fixed Deposit	Equity Mutual Funds
Tenure	15 years	5-10 years	No fixed tenure
Interest Rate	7.1%	5-7%	10-15% (market-dependent)
Tax Benefits	Tax-free	Taxable	LTCG tax applies
Risk Level	Low	Low	High

Advantages of Investing in PPF

Here are some key reasons why investing in a PPF account can be beneficial:

Safe Investment with Guaranteed Returns

Since the PPF is backed by the Government of India, it is completely risk-free. Your investment remains secure, with returns guaranteed by the government. Moreover, funds in a PPF account are protected from seizure, even in legal disputes.

Significant Tax Benefits

PPF is one of the most tax-efficient investment options in India, enjoying an Exempt-Exempt-Exempt (EEE) tax status:

Tax Deduction: Annual investments of up to ₹1.5 lakh are eligible for tax deductions under Section 80C.
Tax-Free Interest: The interest earned on the PPF balance is tax-free.
Tax-Free Maturity: The entire maturity amount, including both principal and interest, is exempt from taxation.

Flexible Investment Options with Competitive Returns

PPF accounts allow investments as per your financial capacity:

Low Initial Investment: Open an account with just ₹100.
Flexible Contributions: Contribute anywhere between ₹500 to ₹1.5 lakh annually, either as a lump sum or in up to 12 installments.
Attractive Interest Rate: The current interest rate (as of June 30, 2018) stands at 7.6% per annum, compounded annually, ensuring decent growth over time.

💡 Tip: To maximize earnings, deposit funds before the 5th of every month or, ideally, invest ₹1.5 lakh before April 5 of the financial year.

Liquidity Through Loans and Withdrawals

Despite its 15-year lock-in period, the PPF account offers liquidity options:

Loan Facility: Between the 3rd and 6th year, you can borrow up to 25% of your PPF balance from two years prior. Loans must be repaid within 36 months, with an interest rate just 2% higher than your account’s return.
Partial Withdrawals: From the 7th year onward, partial withdrawals are allowed under specific conditions.
Premature Closure: In case of emergencies like medical expenses or higher education, early closure is permitted after five years.

Flexible Maturity Options

Once the 15-year tenure is complete, you have multiple options:

Full Withdrawal: Withdraw the full amount.
Extension Option: Extend the account in 5-year blocks, with or without further contributions, allowing your investment to continue growing.

Disadvantages of PPF

Long lock-in period of 15 years.
Fixed interest rate.
Maximum investment limit of ₹1.5 lakh per year.

Tax Advantages of Investing in PPF

When you invest in a PPF, you can take advantage of the following tax benefits:

PPF is classified as an Exempt-Exempt-Exempt (EEE) investment, meaning:
- Your contributions are eligible for tax deductions under Section 80C of the Income Tax Act.
- The amount accumulated, along with the interest earned, is tax-free when withdrawn.
It's important to note that you cannot close a PPF account before it reaches maturity. Early closure is not permitted.
Since investments in PPF fall under the EEE category, both the deposits made and the interest accumulated are exempt from taxes at the time of withdrawal.

PPF Account Extension Options

A PPF account matures 15 years after the financial year it was opened. After maturity, you can extend the account for another 5 years with two options:

Extension with Contributions You can extend the account in 5-year blocks as many times as you like by filling out Form H. This must be done within one year after the account matures, or it will automatically extend without contributions. With this option, you can withdraw up to 60% of the balance when you extend the account. You can withdraw once a year, either as a lump sum or in parts over multiple years.
Extension without Contributions If you don’t make a choice, the account will automatically extend without further contributions. No form is needed for this. You can withdraw one time per year, up to the full balance. Once you choose an extension option, it cannot be changed.

Limitations of PPF

The interest rate is lower compared to other savings options like ELSS, which offer better returns.
Joint accounts with a spouse or family members are not allowed.
The maximum annual investment in PPF is Rs. 1.5 lakh, unlike other schemes such as NPS, FDs, or ELSS, where you can invest more.
The lock-in period for PPF is 15 years, which is longer than other schemes with a 3-year lock-in period.
NRIs cannot open a new PPF account, although they can continue contributing to an existing account.

Linking Aadhaar with Your PPF Account Online

Log in to your internet banking account.
Select the option to register your Aadhaar number.
Enter your 12-digit Aadhaar number and confirm.
Choose the PPF account to link.
Check the "Inquiry" section to verify if Aadhaar linking was successful.

Reactivating an Inactive PPF Account

Send a reactivation request letter to the bank or post office where your PPF account is held.
Pay Rs. 500 for each missed contribution year.
Pay Rs. 50 as a penalty for each inactive year.
After completing the payments, the bank or post office will process your request and reactivate the account.

FAQs on Public Provident Fund (PPF)

Can I open a PPF account with my spouse or child?
No, PPF accounts cannot be held jointly. Each person can only have one account in their own name.
Does my PPF account still earn interest if it’s inactive?
No, your account won’t earn interest if it’s inactive. Interest will start once the account is reactivated, based on the available balance.
Can I claim tax deductions for both my PPF account and my child’s PPF account?
Yes, you can claim deductions for your PPF account, your spouse's, and your child’s minor account, but the total amount cannot exceed Rs. 1.5 lakh per year.
Can I open a PPF account for my grandchild?
No, only parents or legal guardians can open a PPF account for a minor.
Can I extend my PPF account for three more years after it matures?
No, PPF accounts can only be extended in blocks of five years.
Can I transfer my PPF account to another branch or office?
Yes, you can transfer your PPF account to another branch or office.
How can a nominee claim the PPF balance if the account holder dies?
The nominee can claim the balance by filling out Form G and providing documents like the death certificate, PPF passbook, and a succession certificate if needed.
What is the purpose of a PPF account?
PPF accounts are designed to help you save money, earn interest, and get tax benefits under Section 80C up to Rs. 1.5 lakh.
Can a woman change her name in her PPF account after marriage?
Yes, a woman can update her name by providing proof of marriage.
Can parents withdraw from their child’s minor PPF account?
Yes, parents or guardians can make withdrawals for the child’s benefit, like for education or medical expenses.
How do I change a minor’s PPF account to an adult’s?
When the minor turns 18, submit an application with documents to update the account to an adult's.
Is it mandatory to withdraw the PPF balance after 15 years?
No, you don’t have to withdraw the money after 15 years. It can stay in the account and continue earning interest.