PPF: Interest Rate, Tax Benefits & Withdrawal Rules (2026)

PPF, or Public Provident Fund, is a government-backed, long-term savings scheme that gives you guaranteed, completely tax-free returns. The PPF interest rate for Q1 FY 2026-27 is 7.1% per annum, compounded annually. Every rupee you invest, every rupee of interest you earn, and the entire amount you withdraw at maturity is exempt from income tax. This is called EEE status: Exempt, Exempt, Exempt. Very few financial instruments in India qualify for it.

In my seven years of working with salaried professionals on income tax planning, PPF comes up in almost every Section 80C conversation. It is not the flashiest investment and it will not double your money in two years. But for building a disciplined, risk-free, long-term corpus that saves tax every year while it grows. Nothing quite matches it.

This article covers everything you need to know: what PPF actually is, how interest is calculated, withdrawal and loan rules, how it fits into a salaried professional’s tax plan alongside EPF, and what changed or stayed the same in 2026.

PPF Full Form and Basic Details

PPF full form is Public Provident Fund. It was introduced in 1968 by the National Savings Institute under the Ministry of Finance. The original intent was to bring self-employed professionals and workers in the unorganised sector on par with salaried employees who had mandatory EPF coverage. Over five decades later, it remains one of India’s most trusted savings instruments because the fundamentals have never changed: government backing, guaranteed returns, and full tax exemption.

PPF in 2026: What Is New and What Has Not Changed

Before going into the full details, here is a quick update summary for anyone revisiting PPF in FY 2026-27:

• Interest rate: Unchanged at 7.1% per annum. The Ministry of Finance confirmed this rate for Q1 FY 2026-27 (April to June 2026). It has remained at 7.1% since April 2020, covering six consecutive years without revision.
• Contribution limits: No change. Minimum Rs. 500, maximum Rs. 1.5 lakh per financial year. These limits were last revised in 2014.
• Section 80C deduction: Available only under the old tax regime, unchanged. The Rs. 1.5 lakh ceiling under 80C applies across all instruments combined: PPF, ELSS, life insurance premiums, EPF employee contribution, and others.
• New Tax Regime: Under the default new tax regime for FY 2026-27, Section 80C deductions including PPF contributions are not available. However, the EEE status of PPF remains intact regardless of which regime you choose. This means interest earned and maturity amount stay tax-free either way.
• Withdrawal and loan rules: No changes from the 2019 PPF Scheme rules that are currently in effect.

In short: the scheme is stable. No Budget 2025 or 2026 announcement has altered PPF’s core structure. If you were planning to open an account or top up an existing one, the rules you knew last year still apply.

How PPF Interest Is Calculated (The 5th Rule You Must Know)

This is the detail most people miss. It costs them real money every year.

PPF interest is calculated monthly based on the lowest balance in your account between the 5th and the last day of the month. It is then credited to your account on 31st March each year.

What this means in practice: if you deposit on or before the 5th of a month, that deposit earns interest for the entire month. If you deposit on the 6th or later, your deposit earns zero interest for that month. Interest starts only from the following month.

Example: Priya deposits Rs. 1,50,000 in her PPF account on April 7. That deposit earns no interest for April. Interest starts from May. Rohit deposits the same Rs. 1,50,000 on April 3. His deposit earns interest from April itself. Over 15 years at 7.1%, Priya loses roughly Rs. 10,650 compared to Rohit, just because of a 4-day difference in deposit timing repeated every year.

The right approach: Make your annual PPF contribution between April 1 and April 5 every year to earn interest for all 12 months. If you prefer monthly contributions, transfer before the 5th of each month. Set a standing instruction in your bank to automate this.

What Is EEE Tax Status and Why It Matters

PPF has EEE tax status: Exempt, Exempt, Exempt. Here is what each exemption covers:

• First E (Contribution): The amount you invest every year qualifies for deduction under Section 80C, up to Rs. 1.5 lakh per year. This reduces your taxable income directly. Available only under the old tax regime.
• Second E (Interest): The interest your PPF account earns each year is completely tax-free. You do not declare it as income. It does not get added to your taxable income at any point during the 15-year period.
• Third E (Maturity): When you withdraw the full amount at the end of 15 years, the entire amount is tax-free in your hands, including principal and all compounded interest. No TDS, no reporting required.

To understand why this is significant: a fixed deposit earning 7% interest is fully taxable at your slab rate. If you are in the 30% bracket, your effective post-tax return on an FD is roughly 4.9%. PPF at 7.1% with zero tax is 7.1% in your hands, every year, for 15 years. That gap is the core reason PPF still makes sense as a long-term instrument despite its rigidity.

You can read more about how Section 80C works in our detailed guide on Section 80C deductions.

PPF Account: Who Can Open, Where, and How

Any resident Indian individual can open a PPF account: salaried employees, self-employed professionals, freelancers, homemakers, and retirees. There is no age restriction, and parents or guardians can open accounts on behalf of minors.

One important rule: Only one PPF account per person. You cannot open a second account in your own name at a different bank or post office. If you accidentally open two, only one is treated as valid. The second earns no interest and the principal deposited there is returned without interest.

Where you can open a PPF account:

• Any post office (offline)
• Nationalised banks: SBI, PNB, Bank of Baroda, Canara Bank, and others
• Authorised private banks: ICICI Bank, HDFC Bank, Axis Bank

The interest rate is the same regardless of where you open the account. The government sets it uniformly every quarter. There is no better bank for PPF returns. Choose based on convenience and your existing banking relationship.

For online account opening, log into your internet banking, go to the PPF or investments section, and select “Open PPF Account.” You will need your Aadhaar, PAN, and bank account details. The account is typically activated within one to two working days.

PPF for Salaried Employees: Where It Fits When You Already Have EPF

This is the question I get most often from salaried professionals: “I already have EPF being deducted every month. Do I still need PPF?”

The answer depends on two things: how much of your 80C limit EPF is already using, and whether you are on the old or new tax regime.

Here is how to think about it with a real example:

Rahul is 32, works in an IT company in Bengaluru, and earns a basic salary of Rs. 60,000 per month. His EPF deduction is 12% of basic, which is Rs. 7,200 per month or Rs. 86,400 per year. This EPF employee contribution automatically qualifies for Section 80C deduction. That leaves Rs. 63,600 still available under the Rs. 1.5 lakh 80C ceiling.

If Rahul also invests Rs. 63,600 in PPF, or rounds up to Rs. 70,000, his entire 80C limit is used up. He saves additional income tax on that amount at his applicable slab rate, and his PPF corpus grows at 7.1% completely tax-free alongside his EPF.

Now consider the retirement picture. Rahul’s EPF account will give him a large corpus at retirement, but it is tied to his employment history, employer changes, and EPFO rules. His PPF account runs independently. It does not move when he changes jobs, it is not subject to EPFO regulations, and at maturity the full amount is his with no conditions. This separate, sovereign-backed bucket is precisely why salaried professionals who already have EPF still benefit from PPF.

If your basic salary is high and EPF alone is consuming most or all of your Rs. 1.5 lakh 80C limit, the 80C argument for PPF weakens. But the EEE compounding argument remains valid regardless of your salary level. PPF gives you a completely separate, government-guaranteed tax-free corpus alongside your EPF.

One more important point: if you have switched to the new tax regime, PPF contributions do not give you a tax deduction. But many salaried professionals on the new regime still invest in PPF because they want a guaranteed, tax-free retirement bucket that is completely separate from market-linked investments. The EEE benefit on interest and maturity applies even under the new regime.

PPF Withdrawal Rules: Partial, Loan, Premature, and Maturity

The 15-year lock-in is the most talked-about aspect of PPF, and also the most misunderstood. You are not entirely locked out of your money for 15 years. There are structured access points, and knowing them helps you plan around PPF rather than avoid it.

Partial Withdrawal (From Year 7)

You can make one partial withdrawal per financial year starting from the 7th financial year of the account. The maximum you can withdraw is 50% of the balance at the end of the 4th year or the year immediately preceding the withdrawal, whichever is lower.

Example: You opened your PPF in FY 2018-19. Your balance at end of FY 2022-23 (4th year) was Rs. 5 lakh. Your balance at end of FY 2024-25 (year before withdrawal) is Rs. 9 lakh. The limit is the lower of 50% of Rs. 5 lakh (Rs. 2.5 lakh) and 50% of Rs. 9 lakh (Rs. 4.5 lakh). So you can withdraw up to Rs. 2.5 lakh. Partial withdrawals are completely tax-free.

Loan Against PPF (Year 3 to Year 6)

Between the 3rd and 6th financial year of the account, you can take a loan against your PPF balance. The limit is up to 25% of the balance at the end of the 2nd year preceding the loan application. The interest rate is PPF rate + 1%, which currently works out to 8.1%. The loan must be repaid within 36 months. If not repaid within 36 months, the rate increases to PPF rate + 6%.

This is often a smarter option than a personal loan for short-term needs during the early years of your account. The cost is lower, and your PPF corpus continues to compound uninterrupted while the loan is outstanding.

All PPF withdrawal and loan rules mentioned above are governed by the PPF Scheme 2019, notified by the Department of Economic Affairs, Ministry of Finance. You can refer to the official notification for the complete legal framework.

Premature Closure (After Year 5, Specific Conditions Only)

Premature closure is allowed after completing 5 financial years, only for specific reasons: serious illness of the account holder, spouse, children, or parents; higher education expenses of the account holder or dependent children; or change in residency status if you become an NRI.

The penalty is a 1% reduction in the interest rate for the entire tenure. If the applicable rate was 7.1%, you will receive interest calculated at 6.1% for all years of the account.

Full Withdrawal at Maturity (After 15 Years)

After 15 financial years, you can withdraw the complete balance including all compounded interest. The full amount is tax-free. Submit Form C at your bank or post office, and the amount is credited to your linked bank account.

After maturity, you have three choices:

• Withdraw everything and close the account
• Extend in 5-year blocks with continued contributions. Submit Form H within one year of maturity.
• Extend without contributions. The account stays open, earns interest at the prevailing rate, and you can make one partial withdrawal per year.

PPF vs EPF: What Is the Difference?

Both are provident funds. Both are tax-efficient. But they work very differently and serve different segments.

EPF has employer matching, which makes it far superior in overall returns for salaried employees. That employer contribution is income you would otherwise not receive. PPF, on the other hand, is 100% your own money growing at a government-declared rate, completely independent of your employer. For self-employed individuals, freelancers, and business owners with no EPF coverage, PPF is often the cornerstone of their retirement and tax-saving plan.

For salaried employees, the right approach is usually both. EPF serves as the mandatory foundation and PPF as an additional voluntary layer for extra tax-free compounding that stays with you regardless of job changes.

PPF and the Old vs New Tax Regime Decision

This is critical for 2025-26 and 2026-27. PPF’s Section 80C benefit is only available under the old tax regime. If you choose the new tax regime, your PPF contributions do not reduce your taxable income. However, the interest earned and maturity amount remain fully tax-free because EEE status is a feature of the scheme itself, not of the tax regime you choose.

This does not mean PPF is irrelevant under the new regime. Many professionals invest in PPF even under the new regime because they want a government-guaranteed, completely tax-free corpus for retirement or a child’s education. No market-linked instrument provides that certainty.

If you are deciding between regimes, large PPF contributions are one factor that can tilt the calculation in favour of the old regime. Read our comparison of old tax regime vs new tax regime to understand which works better for your income and investment profile.

How Much Can You Build With PPF? A Real Projection

At the current rate of 7.1% compounded annually:

Note: Figures are approximate and assume contributions made at the start of each financial year at a constant 7.1% rate. Actual corpus will vary based on deposit timing and government rate revisions.

These projections assume the interest rate stays at 7.1%. The actual corpus will vary based on government rate revisions. But the principle holds: the combination of annual compounding and full tax exemption at maturity makes PPF one of very few instruments where a disciplined investor can build a crore-plus corpus with zero tax liability at the end.

On the extension strategy: after the 15-year period, if you extend without contributions, your existing corpus continues to earn 7.1% compounded annually and you can make one partial withdrawal per year. This makes PPF a practical, tax-free income supplement in retirement, especially useful in years when you want to avoid selling equity investments at a loss.

Common PPF Mistakes to Avoid

These are the mistakes that come up most often in real tax planning conversations:

• Depositing after the 5th: Losing one month of interest every year for 15 years compounds into a real shortfall at maturity. Set a standing instruction for the first week of April.
• Missing the minimum Rs. 500 deposit: If you skip a financial year, the account goes inactive. Reactivation costs Rs. 50 penalty per inactive year plus the Rs. 500 minimum deposit for each missed year.
• Not filing Form H at maturity: If you want to extend with continued contributions after 15 years, Form H must be submitted within one year of maturity. Missing this window means new deposits will not earn interest and will not qualify for Section 80C.
• Assuming 80C benefit in the new tax regime: If you have switched to the new regime, your PPF contribution is not deductible. Plan accordingly rather than discovering this at ITR filing time.
• Overlooking the loan window: Between Year 3 and Year 6, a PPF loan at 8.1% is significantly cheaper than a personal loan at 12-18%. Many account holders forget this option exists entirely and take expensive loans instead.
• Not checking the 80C headroom before investing: If your EPF contribution alone is close to Rs. 1.5 lakh, additional PPF investment will not give you more 80C benefit under the old regime. Run the numbers before deciding how much to put in PPF.

Frequently Asked Questions

Can I open a PPF account for my child?

Yes. Parents or guardians can open a PPF account on behalf of a minor. However, the minor’s account and the parent’s own PPF are counted together for the Rs. 1.5 lakh annual limit. If you contribute Rs. 80,000 to your account and Rs. 70,000 to your child’s, the combined Rs. 1.5 lakh is the ceiling for Section 80C. When the child turns 18, the account converts to their name.

Can an NRI open or maintain a PPF account?

An NRI cannot open a new PPF account. If you had one before becoming an NRI, you can continue holding it until the original 15-year maturity, continue earning interest, and withdraw the amount at maturity. You cannot extend beyond the original 15-year term once you are an NRI.

Is PPF interest taxable?

No. PPF interest is completely tax-free regardless of the amount earned. You do not need to report it as income in your ITR. This applies under both the old and new tax regimes.

What happens to a PPF account after the holder’s death?

The balance is paid to the nominee or legal heir even before the 15-year maturity completes. The nominee cannot continue the account in their own name. If the balance exceeds Rs. 1.5 lakh, the nominee must submit identity proof to claim the amount. Without a nominee, a legal heir certificate is required.

Is PPF better than ELSS for tax saving?

They serve different purposes. ELSS has a 3-year lock-in, is market-linked, and historically delivers higher returns than PPF. However, ELSS gains above Rs. 1.25 lakh per year are taxable at 12.5% under current rules. PPF has a 15-year lock-in but delivers government-guaranteed, fully tax-free returns. If you need certainty and capital protection, PPF is the better choice. If you can tolerate market risk for potentially higher long-term returns, ELSS can complement PPF as part of a diversified tax-saving strategy.

My employer already deducts EPF. Do I still need to invest in PPF separately?

Yes, for most salaried professionals, PPF still makes sense alongside EPF. The reason, however, changes based on your salary. If your basic salary is below Rs. 75,000 per month, your EPF contribution is likely leaving meaningful 80C headroom that PPF can fill, giving you additional tax savings. If your basic salary is higher and EPF is consuming most of the Rs. 1.5 lakh 80C limit, the tax deduction argument weakens. But PPF still gives you a completely separate, sovereign-backed, tax-free corpus that runs independent of your employment history. Most salaried professionals benefit from having both, with the PPF amount calibrated to their remaining 80C headroom.

Written & Reviewed by

Diksha Chawla

Financial Educator & Content Creator | FinLecture.in

Diksha covers Indian income tax, mutual funds, ITR filing, and personal finance. FinLecture content is cross-checked against official government portals and SEBI/AMFI guidelines.

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