How PPF interest and rules work
The Public Provident Fund is a government-backed, 15-year savings scheme whose interest is set by the Ministry of Finance each quarter. Its appeal is not the rate but the combination of sovereign safety, tax-free interest, and a long lock-in that forces the money to compound.
Formula
Each year: balance = (balance + annual deposit) × (1 + rate)
- Deposits are treated as made at the start of the year
- Interest is compounded annually and credited at year end
- The calculator applies your rate for the full term, though the official rate is revised quarterly
The rules that shape the maturity figure
You can deposit between ₹500 and ₹1.5 lakh per financial year across all your PPF accounts combined, in one payment or in instalments. Exceeding the annual ceiling earns no interest on the excess.
The account runs for 15 years from the end of the financial year in which it is opened, and can then be extended in five-year blocks with or without further contributions. Partial withdrawal is permitted from the seventh year, and a loan against the balance from the third.
Deposit early in the year, not late
Interest is calculated on the lowest balance between the close of the fifth day and the last day of each month. A deposit made on 3 April therefore earns interest for the entire year, while the same deposit on 6 April earns nothing for that month.
Over a 15-year term, consistently depositing in early April rather than late March is worth a meaningful amount — this calculator assumes the favourable start-of-year timing.
Why the tax treatment matters more than the rate
PPF has historically been exempt-exempt-exempt: the deposit qualifies for deduction under the old tax regime, the interest accrues tax-free, and the maturity amount is tax-free. A 7.1% tax-free return is equivalent to well over 10% before tax for someone in the highest slab.
Under the new tax regime the deduction on deposits is not available, which weakens the case for maximising PPF purely for tax reasons — though the tax-free interest and sovereign guarantee remain.
Where PPF fits in a portfolio
PPF suits the debt portion of a long-term portfolio, particularly retirement money you would otherwise hold in fixed deposits. It is a poor fit for goals inside seven years because of the withdrawal restrictions.
Because the rate is reset quarterly, treat any long projection as indicative. The rate has drifted down over the past decade, so a conservative assumption is safer than extrapolating today’s number for 15 years.
Example: ₹1.5 lakh a year at 7.1% for 15 years
- Annual deposit
- ₹1,50,000
- Interest rate
- 7.1% p.a. (compounded yearly)
- Term
- 15 years
- Total deposited
- ₹22,50,000
- Interest earned
- ≈ ₹18.17 lakh
- Maturity value
- ≈ ₹40.67 lakh
Interest accounts for about 45% of the maturity amount, and all of it is tax-free. Extending the account by one five-year block without fresh deposits would take the balance past ₹57 lakh.