Public Provident Fund: Features & Tax Benefits

The Public Provident Fund (PPF) is a safe and long-term savings plan started by the Government of India. It is one of the most trusted options for people who want steady returns, tax benefits, and security for their hard-earned money. With PPF, you can save money every year, either in one go or in small instalments. The government gives you a fixed interest rate, which is compounded every year, helping your savings grow faster.

Your money stays completely protected by the government, and you don’t have to worry about market ups and downs. Because of its safety, tax savings, and guaranteed growth, PPF is a popular choice for building a retirement fund or long-term savings goal for your family.

What is a Public Provident Fund (PPF) Account?

The Public Provident Fund (PPF) is a savings scheme introduced by the National Savings Institute in 1968. Its main goal is to encourage small savings and provide a secure investment option for everyone, not just employees.

The money you put into a PPF account is managed by the Government of India. This means your investment is 100% safe and not affected by stock market ups and downs.

The most famous feature of PPF is its EEE (Exempt-Exempt-Exempt) tax status.

• Exempt: The money you invest (up to ₹1.5 lakh per year) is tax-deductible.
• Exempt: The interest you earn every year is completely tax-free.
• Exempt: The final maturity amount you receive after 15 years is also 100% tax-free.

Importance of a PPF Account

A Public Provident Fund (PPF) account is one of the most trusted savings options in India. It offers safety, tax benefits, and long-term growth all in one plan. Here’s why it’s an important part of your financial journey:

1. Guaranteed Safety

Your PPF account is backed by the Government of India, which means your money is completely secure. There’s no market risk or chance of loss, making it perfect for those who prefer safe investments. It’s one of the few savings options that guarantees both your principal and interest.

2. Tax-Free Compounding

The interest you earn on your PPF gets added back to your main balance every year, helping your money grow through the power of compounding. Over time, this leads to a larger corpus and the best part is that both your interest and maturity amount are tax-free.

3. Excellent Tax Savings

Investing in PPF helps you save taxes under Section 80C of the Income Tax Act. You can claim up to ₹1.5 lakh as a deduction every year, reducing your taxable income. It’s one of the few investments that offers tax benefits at all three stages investment, interest, and withdrawal.

4. Financial Discipline

With a 15-year lock-in period, PPF encourages you to stay invested for the long term. This builds a strong savings habit and helps you create a solid financial base for future goals like retirement, children’s education, or emergencies.

5. Affordable for Everyone

You can open a PPF account with just ₹500 a year, which makes it accessible to anyone whether you’re a salaried employee, self-employed professional, business owner, or student. You can also contribute up to ₹1.5 lakh a year depending on your savings capacity.

6. Liquidity When Needed

Even though it’s a long-term plan, PPF gives you some flexibility. You can take a loan against your balance between the 3rd and 6th year, or make partial withdrawals after 5 years. This ensures your money stays available for important needs without breaking your savings.

Features of a PPF Account

The Public Provident Fund (PPF) comes with several features that make it one of the most dependable savings options in India. Let’s look at each of its key features in detail:

1. Tenure and Lock-in Period

A PPF account has a 15-year lock-in period, which means the money you deposit stays invested for that duration. After 15 years, you can withdraw the entire amount or extend your account in blocks of 5 years.
You can choose to continue with or without fresh contributions during the extended period, and your balance will keep earning interest.

2. Contributions and Deposit Limits

You can start your PPF journey with a minimum contribution of ₹500 per year. The maximum deposit allowed is ₹1.5 lakh per financial year.
You can deposit money once in a lump sum or in up to 12 installments during the year. This flexibility helps you plan your savings as per your convenience monthly, quarterly, or yearly.

3. Interest Rate and Compounding

The interest rate on PPF is decided by the Government of India and is usually revised every quarter. The interest is compounded annually, meaning your earned interest is added to the main balance every year helping your savings grow faster.
This rate remains steady compared to market-linked returns, ensuring safe and predictable growth.

4. Tax Treatment and Benefits

PPF offers one of the best tax advantages available under Indian law.

• The amount you invest (up to ₹1.5 lakh) is eligible for deduction under Section 80C of the Income Tax Act.
• The interest earned is completely tax-free.
• The maturity amount is also exempt from tax. This makes PPF an Exempt-Exempt-Exempt (EEE) instrument one of the most tax-efficient investments available.

5. Account Type and Nomination Rules

A PPF account can be opened only in the name of an individual. Joint accounts are not allowed. However, parents or legal guardians can open an account on behalf of a minor child.
You can also add a nominee at the time of opening the account or later, ensuring your savings go to your chosen person in case of any unforeseen event.

6. Inactive Account and Reactivation

If you forget to deposit the minimum ₹500 in any financial year, your account becomes inactive.
To reactivate it, you need to pay a penalty of ₹50 per year for every year the account was inactive, along with a minimum deposit of ₹500 for each missed year.
Once you complete this process at your bank or post office, your PPF account becomes active again, and you can continue your regular savings.

How to Open a PPF Account (Step-by-Step)

Opening a Public Provident Fund (PPF) account is quick and easy. You can do it online or offline through a bank or post office.

Step 1: Choose where to open your account

You can open a PPF account with:

• A nationalised bank,
• A private bank
• A Post Office.

Many banks like SBI, ICICI, HDFC, and Axis also allow you to open a PPF account online through net banking.

Step 2: Check your eligibility

• Any resident Indian can open a PPF account.
• Parents or guardians can open an account for a minor child.
• You can hold only one PPF account in your name.
  (An account opened for your child doesn’t count toward this limit.)
• NRIs and HUFs are not eligible to open new PPF accounts.

Step 3: Keep the required documents ready

You’ll need:

• Aadhaar Card and PAN Card (for KYC)
• Address proof
• Passport-size photo
• Nomination form (to add a nominee)

Step 4: Make the initial deposit

• Minimum amount to open: ₹100
• Minimum yearly contribution: ₹500
• You can deposit in lump sum or instalments (up to 12 times a year)

Step 5: Complete the application

• Offline: Fill out Form A and submit it with your documents at the bank or post office.
• Online: Follow the e-KYC and OTP process on your bank’s net banking portal or app.

Once your application is processed, your PPF account will be activated, and you’ll receive a passbook or account details to track your savings.

Eligibility for Opening a PPF Account

To open a Public Provident Fund (PPF) account, certain eligibility rules apply:

1. Who can open:

• Any Indian resident individual can open a PPF account.
• Parents or legal guardians can open an account on behalf of a minor child.

2. Who cannot open:

• Non-Resident Indians (NRIs) cannot open a new PPF account.
• If an individual becomes an NRI after opening a PPF account, the existing account continues until maturity, but some restrictions apply (check with your bank or post office).

3. Account limits:

• Each individual is allowed only one PPF account in their name.
• Accounts opened for minors by their parents/guardians do not count toward this limit

Tenure and Extension of a PPF Account

A PPF account comes with a mandatory 15-year lock-in period, which starts from the end of the financial year in which you make your first deposit. This long tenure encourages disciplined, long-term saving.

After Maturity (15 Years)

When your PPF account matures, you have three options:

• Close the Account:

  • Withdraw the entire balance (principal + interest) completely tax-free.

• Extend with Contributions (5-Year Blocks):

  • Continue your account for another 5 years and keep making new deposits.
  • You must inform your bank or post office within one year of maturity.

• Extend without Contributions (5-Year Blocks):

  • Keep the existing money in the account and earn interest without depositing anything new.
  • This is the default option if you do nothing after maturity

Contribution Rules and Tips

PPF contributions are flexible and suitable for every budget.

• Minimum deposit: ₹500 per financial year
• Maximum deposit: ₹1.5 lakh per financial year
• Deposit frequency: You can deposit once in a lump sum or in up to 12 installments during the year.

Missed Payment / Inactive Account

• If you miss the minimum deposit, your account becomes inactive.
• To reactivate, pay a penalty of ₹50 per missed year and the minimum subscription of ₹500 for each missed year.

Pro Tip:

• To maximize compounding and tax benefits, deposit early in the financial year.
• Regular, systematic yearly deposits help your savings grow steadily, instead of waiting to make a lump sum at the last minute.

PPF Tax Benefits: The EEE Power Explained

This is the most attractive feature of PPF. Let's break down the EEE status in simple term.

1. Exempt (on Investment) - Section 80C: When you invest money into your PPF account, you can claim that amount as a deduction from your taxable income. This benefit is available for investments up to ₹1.5 lakh per year under Section 80C of the Income Tax Act. This directly reduces your tax bill.

2. Exempt (on Interest) - Tax-Free Growth: Your PPF balance earns interest every year. This interest is added to your account, but you do not have to pay any tax on it, ever. Unlike Fixed Deposits (FDs), where the interest is taxed every year, PPF interest is 100% tax-free.

3. Exempt (on Maturity) - Tax-Free Withdrawal: After your account matures (after 15 years), you can withdraw the entire corpus your contributions plus all the accumulated interest. This entire amount is 100% tax-free.

Loan and Withdrawal Rules

What if you need money before 15 years? PPF offers some liquidity options.

Loan Against PPF Scheme

• When: You can take a loan against your PPF balance between the 3rd and 6th financial year of your account.
• How Much: You can get a loan of up to 25% of the balance that was in your account at the end of the 2nd year.
• Repayment: The loan must be repaid within 36 months.

Partial Withdrawal

• When: You can make a partial withdrawal after the 6th financial year is completed (i.e., from the 7th year onwards).
• How Much: You can withdraw up to 50% of the balance at the end of the 4th year, or 50% of the balance at the end of the preceding year, whichever is lower.
• Frequency: You can make only one partial withdrawal per financial year. This withdrawal is also completely tax-free.

Procedure to Withdraw PPF Money (What is Form C?)

To make a partial withdrawal, you need to use a specific form.

• What is Form C? Form C is the official application form you must fill out and submit to your bank or post office to make a partial withdrawal or to close your account after maturity.

• The Process:

  1. Get Form C from your bank/post office branch.
  2. Fill in your PPF account details, the amount you wish to withdraw, and a declaration that you are eligible.
  3. Submit the form along with your PPF passbook.
  4. The bank will verify the details and process your request. The amount will be credited to your linked savings account.

Conclusion:

The Public Provident Fund (PPF) is much more than a simple savings option it’s the foundation of a secure financial journey. With government-backed safety, assured tax-free returns, and the power of long-term compounding, PPF helps every Indian build wealth steadily and confidently. Whether you’re a young professional starting your career or a retiree planning for stability, a PPF account encourages financial discipline and ensures that your savings grow without market risk.

But remember, while PPF offers stability, true financial success comes from diversifying your investments. Combining the safety of PPF with the growth potential of equities and mutual funds can help you reach your financial goals faster and smarter.

While you can open a PPF account at any bank or post office, the real value lies in planning your complete investment strategy. Open a free Demat account with Motilal Oswal and explore expert research-backed equity ideas to complement your PPF savings building a balanced, future-ready portfolio today.