Quick answer
- PPF is fully tax-free (EEE): exempt at entry, exempt while growing, exempt at exit.
- Entry: up to Rs 1.5 lakh/year deduction under Section 80C (now Section 123 under the Income-tax Act, 2025) — old tax regime only.
- Growth: 7.1% per annum interest, completely tax-free, no TDS.
- Exit: full maturity corpus tax-free under both tax regimes.
- One catch: the 80C entry deduction needs the old regime. The tax-free interest and maturity work in the new regime too.
What is PPF?
The Public Provident Fund (PPF) is a long-term savings scheme backed by the Government of India. You can open an account at most banks and at post offices across the country. The account runs for 15 years, and you can extend it after that in blocks of 5 years.
PPF is popular with salaried and self-employed savers for a simple reason: the return is guaranteed by the government, and the tax treatment is the cleanest of any savings product in India.
The three tax benefits (EEE), explained simply
1. Exempt at entry — the Section 123 (80C) deduction
Every rupee you put into PPF, up to Rs 1.5 lakh per financial year, can be deducted from your taxable income. Under the Income-tax Act, 2025 (effective 1 April 2026), the old Section 80C is re-numbered as Section 123, but the deduction itself is unchanged.
Two important conditions:
- The deduction works only under the old tax regime. If you file under the new regime, there is no deduction for your PPF deposit.
- The Rs 1.5 lakh ceiling is shared with all other 80C/123 items (ELSS, EPF, life insurance premium, principal repayment of home loan, and so on).
2. Exempt while growing — tax-free interest every year
The interest credited to your PPF account each year is completely tax-free. There is no TDS on PPF interest, and it is not added to your taxable income. The current rate is 7.1% per annum, compounded yearly. It has stayed at 7.1% since April 2020; the government reviews it every quarter, so it can change, but it has been remarkably stable.
3. Exempt at exit — tax-free maturity
When the account matures after 15 years (or later, if you extend), the entire corpus — principal plus all accumulated interest — comes to you tax-free. The bank or post office deducts nothing.
The nuance to remember: only the entry deduction needs the old regime. The tax-free interest and the tax-free maturity apply under both regimes.
PPF vs fixed deposit — the post-tax comparison
This is where PPF’s EEE status shows its real power. A bank FD pays a higher headline rate, but its interest is fully taxable at your slab rate.
| PPF (7.1%, tax-free) | Bank FD (7.5%, taxable) | |
|---|---|---|
| You are in the 20% slab | Approx Rs 40.7 lakh maturity | Approx Rs 37.0 lakh post-tax maturity |
| You are in the 30% slab | Approx Rs 40.7 lakh maturity | Approx Rs 34.7 lakh post-tax maturity |
Illustrative: Rs 1.5 lakh deposited at the start of each FY for 15 years. FD figures assume tax is paid on interest each year (effective rate 6% / 5.25%).
Even with a lower headline rate, PPF leaves you with more money because not a rupee of it is taxed. The gap grows with your tax bracket — at the 30% slab, the FD’s effective return drops to about 5.25%, nearly two percentage points below PPF.
Key rules to remember
| Feature | Rule |
|---|---|
| Minimum deposit | Rs 500 per financial year |
| Maximum deposit | Rs 1.5 lakh per financial year |
| Deposit frequency | Lump sum or up to 12 instalments in a year |
| Lock-in | 15 years (matures at the end of the 15th FY from account opening) |
| Extension | In blocks of 5 years, with or without further deposits |
| Accounts per person | One in your own name; you may open one more for a minor (as guardian) — but the Rs 1.5 lakh annual cap covers your own account and the minor’s account together |
| Joint account | Not allowed |
| Eligibility | Resident Indian adult; minors through a guardian |
| Interest credit | Once a year, on 31 March |
| Transfer | Account can be moved between banks and post offices |
Two things that trip people up: deposits above Rs 1.5 lakh in a year earn no interest — the bank returns the excess — and a missed year (deposit below Rs 500) makes the account dormant, which you can revive by paying Rs 50 per missed year plus the minimum deposit.
Withdrawing money and taking a loan
Partial withdrawals — from the 7th financial year
- Allowed once per financial year, starting from the 7th FY.
- The cap is the lower of: 50% of the balance at the end of the 4th FY before the withdrawal year, or 50% of the balance at the end of the previous FY.
- Withdrawals are fully tax-free and need no stated reason.
- A withdrawn amount cannot be put back to use up the Rs 1.5 lakh annual limit.
Loans — from the 3rd to the 6th financial year
- Available between the 3rd and 6th FY of the account.
- You can borrow up to 25% of the balance at the end of the 2nd FY before the loan year.
- Interest is 1% above the prevailing PPF rate — so 8.1% in 2026. A fresh loan is allowed only after the earlier one is fully repaid.
- Repay within 36 months (principal first, then interest). If you miss the 36-month window, the outstanding amount is treated as a withdrawal and interest is charged at 6% per annum.
Premature closure — only after 5 years, for specific reasons
Premature closure is allowed after completing 5 financial years, only for:
- Treatment of a life-threatening illness of the account holder, spouse, children or parents.
- Higher education of the account holder or dependent children.
- Change in residential status — if you become an NRI.
The penalty: the interest rate on your deposits is reduced by 1 percentage point for all years (so 7.1% becomes 6.1% across the board). There is no extra tax — the payout itself stays tax-free.
What happens at maturity
You have three choices when the 15 years end:
- Close and withdraw everything — full corpus, tax-free.
- Extend in 5-year blocks with fresh contributions — submit the extension form within one year of maturity; deposits keep earning the 80C/123 deduction, and withdrawals are capped at 60% of the balance at the start of each block.
- Extend without contributions — no new deposits; the balance keeps earning interest, and one withdrawal per FY is allowed.
A useful projection: Rs 1.5 lakh a year at 7.1% grows to about Rs 40.7 lakh in 15 years and to about Rs 1.03 crore if you extend to 25 years — all of it tax-free.
A small timing tip that adds up
PPF interest is calculated on the lowest balance between the 5th and the last day of each month. Deposit your money before the 5th of the month — especially in April — and you earn that month’s interest on the full amount. Deposit after the 5th and that month’s interest on the new deposit is lost. Depositing the full year’s Rs 1.5 lakh on 1 April instead of waiting until March can add a few thousand rupees over the life of the account.
What changed and what stayed the same
| What | Status |
|---|---|
| Section 80C deduction | Continues — re-numbered as Section 123 under the Income-tax Act, 2025 (effective 1 April 2026). Old-regime only, as before. |
| Interest exemption | Continues unchanged — interest stays fully tax-free. |
| Maturity exemption | Continues unchanged — full corpus tax-free. |
| Interest rate | 7.1%, unchanged since April 2020. |
| Premature-closure grounds | NRI status change added as a recognised reason. |
Practical impact — who should (and should not) rely on PPF
PPF makes the most sense if you: use the old tax regime (you get the Rs 1.5 lakh entry deduction worth up to Rs 46,800 a year at the 30% slab), want a guaranteed, zero-risk component in your portfolio, and can lock money away for 15 years — for example, for retirement or a child’s future.
Think twice if you: are in the new tax regime and chasing returns. You still get tax-free interest and maturity, but you get no entry deduction, and the money is locked for 15 years. A plain equity fund or ELSS (3-year lock-in) may suit better if you can take market risk. That said, PPF and ELSS are not rivals — many savers hold both: ELSS for growth, PPF for the guaranteed floor.
If you are comparing retirement options, also see our guides to NPS tax benefits and Section 123 (80C) deductions.
Frequently asked questions
1. Is PPF interest taxable in 2026?
No. The interest credited each year is completely tax-free. No TDS is deducted, and it is not added to your taxable income.
2. What is the PPF interest rate in 2026?
The government has kept the rate at 7.1% per annum for FY 2026-27. It has been unchanged since April 2020 and is reviewed every quarter.
3. Can I open a PPF account online?
Yes. Most major banks allow PPF account opening through net banking or mobile apps, and India Post offers it through its online banking portal. You need a PAN and Aadhaar.
4. When can I withdraw money from my PPF account?
Partial withdrawals are allowed once a year from the 7th financial year, within the 50% cap described above. Full withdrawal is allowed at maturity after 15 years, or after 5 years on the specified premature-closure grounds.
5. What is the maximum I can invest in PPF per year?
Rs 1.5 lakh per financial year. Anything above that earns no interest and is returned by the bank or post office.
6. Does the new tax regime give the PPF 80C deduction?
No. The entry deduction (now Section 123) is available only under the old tax regime. The new regime offers no deduction — but the interest and maturity stay tax-free under both regimes.
7. Is PPF affected by the Rs 2.5 lakh EPF interest threshold?
No. That threshold applies only to Employees’ Provident Fund contributions. PPF interest is fully exempt regardless of the amount earned.
Official sources
- India Post – Post Office Saving Schemes (PPF)
- Income Tax Department – incometax.gov.in
- Income Tax e-Filing Portal
Reviewed by Asuthod Rathod, CA. Last updated: 19 October 2026.
Disclaimer
This article provides general information on PPF rules and tax benefits. It does not replace professional tax or investment advice. Interest rates and tax laws may change, and individual circumstances vary. Please consult a qualified advisor for advice tailored to your situation.
Editorial byline for eircicai tax saving guides — covering 80C investments, ELSS, PPF, NPS, and regime comparison. Content is reviewed by Asuthod Rathod, CA.