What is PPF?
Public Provident Fund (PPF) is a government-backed savings scheme that offers tax benefits and guaranteed returns. It's one of the most tax-efficient investment options in India, with EEE (Exempt-Exempt-Exempt) tax status - contributions, interest, and withdrawals are all tax-free.
Key Features
- Tax Benefits: Contributions up to ₹1.5 lakhs deductible under Section 80C
- Tax-Free Returns: Interest earned is completely tax-free
- Tax-Free Withdrawal: Maturity amount is tax-free
- Guaranteed Returns: Government-backed, safe investment
- Long-Term: 15-year lock-in period (extendable in blocks of 5 years)
- Minimum Investment: ₹500 per year, maximum ₹1.5 lakhs per year
How PPF Works
You open a PPF account with a bank or post office. You can deposit money anytime during the financial year (minimum ₹500, maximum ₹1.5 lakhs). The account matures after 15 years, but you can extend it in blocks of 5 years. Interest is compounded annually and credited to your account.
Withdrawal Rules
1. Partial Withdrawal: After 6 years, you can withdraw up to 50% of balance (subject to conditions)
2. Loan Against PPF: Can take loan between 3rd and 6th year (up to 25% of balance)
3. Premature Closure: Only allowed in specific circumstances (medical emergency, higher education)
Tax Implications
Contributions: Deductible under Section 80C up to ₹1.5 lakhs per year.
Interest: Completely tax-free - no tax on interest earned.
Maturity: Withdrawal at maturity is completely tax-free.
PPF has EEE (Exempt-Exempt-Exempt) status, making it one of the most tax-efficient investments. This means your entire investment journey is tax-free - contributions, growth, and withdrawals.
Key Considerations
- Lock-in Period: 15-year commitment, not suitable for short-term goals
- Interest Rates: Rates are set by government quarterly, currently around 7.1%
- Maximum Limit: Can invest only up to ₹1.5 lakhs per year
- Liquidity: Limited withdrawal options before maturity
- Inflation: Returns may not always beat inflation
Who Should Invest in PPF?
PPF is ideal for conservative investors seeking tax-free returns, long-term wealth creation (15+ years), retirement planning, or as part of a tax-saving portfolio. It's perfect for those in higher tax brackets who want to maximize tax benefits while building a safe, guaranteed corpus.