Chapter 5 of 10
PPF — 15 Years to Tax-Free Guaranteed Wealth
Deposits, loan facility, extension, and why PPF is the backbone of conservative retirement.
PPF is a government savings scheme where you deposit up to ₹1.5 lakh per year, earn 7.1% interest guaranteed by the government, and receive the entire amount back tax-free after 15 years. No employer needed. No market risk. Just a government-backed savings account you own.
Mathi's CA gave her one instruction before the financial year ended: open a PPF account before March 31st.
She walked into a post office in Coimbatore, filled out a form, deposited ₹500, and walked out. Done.
She had no idea why she did it. Her friend's equity fund returned 18% last year. Why would anyone want 7.1%? What even happens after 15 years? Can she get her money out if her art business needs it?
She started asking. Here is what she found.
How PPF Works: The Core Rules
Every financial year (April to March), you deposit between ₹500 and ₹1.5 lakh into your PPF account. The government pays 7.1% interest annually. After 15 years, you get everything back: your deposits plus all accumulated interest, completely tax-free.
The 15-year period starts from April 1st of the financial year in which you open the account. So if Mathi opened her account in February 2026, her maturity date is March 31, 2041, not February 2041.
The EEE structure makes PPF uniquely powerful:
- Contribution gets an 80C deduction (up to ₹1.5L)
- Interest earned is tax-free
- Maturity amount is fully tax-free
No other individual investment instrument in India has this combination except EPF (which requires an employer).
The current interest rate of 7.1% is reviewed quarterly by the Finance Ministry. Historically it has ranged from 7.1% to 8.7% over the past decade. The government has not changed it in several years.
The Interest Timing Trick That Most People Miss
PPF interest is calculated on the minimum balance between the 5th day and the last day of each calendar month. This means: if you deposit after the 5th of a month, that deposit earns zero interest for the entire month.
This is not a small detail. Over 15 years, it adds up.
Scenario A: Mathi deposits ₹1.5 lakh on April 30th every year. Her April balance earns zero interest on the fresh deposit.
Scenario B: Mathi deposits ₹1.5 lakh on April 3rd every year. Her April balance includes the full ₹1.5 lakh, earning interest for the whole month.
Over 15 years, consistently depositing before April 5th earns roughly ₹25,000 to ₹40,000 more interest compared to late deposits.
Same total invested. Same rate. Just better timing.
Rule: treat April 5th as your PPF deadline every year.
Unlike SIPs where monthly investing helps through rupee cost averaging, PPF has no price volatility. A single deposit on April 3rd earns interest for 12 months on the full amount. Splitting it into 12 monthly deposits loses interest on portions throughout the year. For PPF specifically, lump sum early beats monthly every time.
How to Open a PPF Account
Where you can open PPF:
- Any nationalized bank: SBI, PNB, Bank of Baroda, Canara, Union Bank
- Select private banks: HDFC, ICICI, Axis
- Post office branches
Documents you need: Aadhaar, PAN, one passport-size photo, signed application form
Online option: If you bank with SBI, HDFC, or ICICI, you can open PPF directly through net banking in 10 minutes. No branch visit needed.
Account limits:
- One PPF account per adult individual
- You can open one additional PPF account for a minor child (as guardian), but the combined deposits across your account and the child's account cannot exceed ₹1.5 lakh per year
NRI rule: NRIs cannot open new PPF accounts. If you were a resident when you opened one and later became an NRI, your existing account continues until maturity at the applicable rate. You cannot extend it after 15 years.
Taking a Loan Against Your PPF
Between the 3rd and 6th financial year of your PPF account, you can take a loan against your balance.
Loan amount: Up to 25% of your PPF balance at the end of the 2nd financial year preceding the loan application.
Interest rate: 1% above the PPF rate. Currently that is 8.1%. Still well below personal loan rates of 12-18%.
Repayment: You must repay within 36 months. Once the first loan is fully repaid, you can take another loan.
After year 6, loans are replaced by partial withdrawals (see next section). You cannot have both a loan and a partial withdrawal active at the same time.
This is a useful but limited option. Mathi keeps it in mind for any short-term cash crunch in the early years of her account, rather than dipping into her equity SIPs.
Partial Withdrawal: From Year 7 Onwards
Starting from the 7th financial year of your account, you can make one partial withdrawal per year.
How much you can withdraw: Up to 50% of the balance at the close of the 4th financial year preceding the withdrawal, or 50% of the balance at the end of the immediately preceding year, whichever is lower.
The withdrawal amount is fully tax-free.
Mathi opened her PPF in April 2026.
By end of FY 2029-30 (4th year from opening), her balance: ₹7.4 lakh
In FY 2032-33 (7th year from opening), she can withdraw: 50% of ₹7.4 lakh = ₹3.7 lakh (maximum allowed)
She does not plan to use this. Her art business income is growing steadily. But knowing the option exists makes the 15-year lock-in feel manageable. This is her emergency access point if something goes seriously wrong.
What Happens After 15 Years: Your Three Choices
At the end of the 15-year tenure, you have three options. You must actively choose. If you do nothing, the account remains open without fresh deposits but continues earning interest.
Option 1: Close and take everything You receive principal plus all interest, fully tax-free. This is the default exit.
Option 2: Extend for 5 years without fresh deposits Your existing balance continues to earn 7.1% tax-free. No new money goes in. You can still make one partial withdrawal per year (up to 60% of balance at extension date). Good if you do not need the money yet but do not want to keep contributing.
Option 3: Extend for 5 years with fresh deposits You continue contributing up to ₹1.5 lakh per year. The 80C deduction continues. Partial withdrawals allowed. Best option if you are still earning and still want the tax benefit.
You can extend in multiple 5-year blocks. Many people run PPF for 20-25 years by extending twice.
| Option at 15 years | New deposits allowed | 80C deduction | Partial withdrawal | Best for |
|---|---|---|---|---|
| Close account | N/A | N/A | N/A | Need the full corpus now |
| Extend without deposits | No | No | Yes (once/year) | Let it grow, no new savings needed |
| Extend with deposits | Yes (up to ₹1.5L) | Yes | Yes (once/year) | Still earning, want to keep 80C benefit |
Mathi plans to extend with deposits at year 15. She will be 49. She still wants the 80C deduction and the guaranteed compounding on top of her equity SIPs.
Premature Closure: The Exceptions
PPF cannot normally be closed before 15 years. There are three situations where it is allowed:
1. Serious illness: Life-threatening disease of the account holder, spouse, or dependent children. Requires medical certification from a recognized authority.
2. Higher education: For the account holder or dependent children. Requires admission documents and fee receipts from a recognized institution.
3. Change in residential status: If you become an NRI after opening the account.
Penalty for premature closure: 1% interest deducted from the rate applicable to all completed years. So instead of 7.1%, your effective return for all past years becomes 6.1%.
Premature closure is only allowed after 5 financial years from account opening.
Why 7.1% Still Makes Sense: Mathi's Math
Her friend's equity fund returned 18% last year. Why would Mathi want 7.1%?
That same equity fund returned -11% the year before. Mathi's PPF returned 7.1% that year too.
PPF earns 7.1% every year. Government-guaranteed. There is no bad year. There is no panic. There is no scenario where she logs in and finds her balance down 30%.
For Mathi, PPF is her financial bedrock. Her freelance income varies wildly. A slow month of orders means stress. The PPF never has a slow month. It compounds quietly no matter what happens with her art business.
She runs ₹1,00,000/year into PPF alongside her equity SIPs. PPF is the guaranteed layer that lets her stay invested in equity through market crashes without panic-selling. The SIPs build wealth. The PPF builds certainty.
That combination is the actual goal.
Key Takeaways
- PPF earns 7.1% (FY26), guaranteed, fully tax-free (EEE: contribution deductible, interest tax-free, maturity tax-free).
- Deposit before April 5th each year as a single lump sum. This earns more interest than spreading across 12 months.
- Loan available between years 3 and 6 (up to 25% of 2nd-year balance). Partial withdrawal from year 7 onwards (up to 50% of 4th-year balance, once per year).
- At 15 years: close and take everything, extend without deposits, or extend with deposits. Choose based on whether you still need the 80C benefit.
- Premature closure allowed after 5 years only for serious illness, higher education, or NRI status. Penalty: 1% interest rate deducted from all past years.
- NRIs cannot open new PPF. Existing accounts continue to maturity at current rates.
- PPF is your guaranteed stability layer. Pair it with equity SIPs. Do not choose between them.
This chapter is part of the Retirement Planning course on Finuraa. It is educational content, not personalized financial advice. Consult a SEBI-registered investment advisor for guidance specific to your situation.