Quick answer: PPF gives you tax savings at all three stages. Your deposit earns a deduction of up to ₹1.5 lakh under the old regime, the interest is fully tax-free, and the maturity amount is fully tax-free too. The current rate is 7.1% per year, and the account runs for 15 years.
The Public Provident Fund, or PPF, is one of the few investments in India where you pay no tax at any stage. You save tax when you put money in, you pay no tax on the interest while it grows, and you pay no tax when you take the money out. This three-stage tax break is called EEE status, and it is the main reason PPF stays popular even though the money is locked in for 15 years.
This guide covers the ppf tax benefits in plain terms: the current rate, the deposit rules, the loan and withdrawal rules, and what changed under the Income-tax Act 2025.
What is PPF and how does it work?
PPF is a long-term savings scheme backed by the Government of India. You can open an account at a bank or a post office. The original term is 15 years, counted from the end of the financial year in which you open the account.
After 15 years you have a choice. You can close the account and take the full amount, or you can extend it in blocks of five years. On extension you can keep adding money, or you can stop contributing and simply let the balance keep earning interest.
Only resident individuals can open a PPF account. Hindu Undivided Families (HUFs), trusts and associations cannot open one, and non-resident Indians (NRIs) cannot open a new account. If you opened an account while you were a resident and later became an NRI, you can keep it until maturity, but you cannot extend it after that.
One person can hold only one PPF account in their own name. A parent or guardian can open a separate account for a minor child. Opening a second account in your own name does not help: under the rules in force since 1 October 2024, the second account is treated as irregular, earns no interest, and its balance is merged into the first account within the yearly limit, with any excess refunded without interest.
What is the current PPF interest rate?
The PPF interest rate is 7.1% per annum as of 2026. The Ministry of Finance notifies the rate every quarter, along with other small savings schemes, and it has stayed at 7.1% since the January–March 2024 quarter.
Interest is worked out on the lowest balance in your account between the 5th and the last day of each month, and it is credited once a year at the end of the financial year. This is why the 5th-of-the-month rule matters: if you deposit on or before the 5th, that deposit counts for interest in the same month. If you deposit on the 6th or later, you lose a full month of interest on that amount.
For a lump-sum deposit, the best day is on or before 5 April, so the full amount earns interest for all twelve months of the year.
How do the ppf tax benefits work?
PPF has EEE status. That means Exempt, Exempt, Exempt — one exemption at each of the three stages:
Stage 1 — deposit. The money you deposit qualifies for a deduction of up to ₹1.5 lakh per financial year. This is the same ₹1.5 lakh ceiling shared with other old-regime deductions such as ELSS, life insurance premiums and the Sukanya Samriddhi Yojana. The deduction is available only if you choose the old tax regime.
Stage 2 — interest. The interest credited to your account each year is fully tax-free. You do not add it to your income, and no TDS is cut on it. This is different from a bank fixed deposit, where the interest is taxed at your slab rate every year.
Stage 3 — maturity. The full amount you receive at maturity — your deposits plus all the interest — is fully tax-free.
The key point for new-regime taxpayers: only the stage-1 deduction depends on the old regime. The tax-free interest and the tax-free maturity survive under the new regime as well, because those exemptions do not come from the deduction chapter. So even if you file under the new regime and cannot claim the deposit deduction, PPF interest still beats FD interest, which is taxed in full.
What changed under the Income-tax Act 2025 — and what stayed the same?
From 1 April 2026, the Income-tax Act 2025 replaced the old Income-tax Act 1961. For PPF, the change is mostly about section numbers, not about the benefit itself:
- The old Section 80C deduction now sits in Section 123 of the new Act. The limit is unchanged at ₹1.5 lakh per year, and it is still an old-regime-only deduction.
- The tax-free interest and tax-free maturity continue under the new Act. Nothing in the new law takes away the EEE character of PPF.
- The scheme rules — 15-year term, deposit limits, loan and withdrawal rules — come from the PPF scheme rules, not from the tax Act, so they are untouched by the renumbering.
If you read older guides that mention Section 80C, read it as Section 123 now. The amount, the limit and the result are the same.
What are the deposit limits and rules?
| Rule | Limit |
|---|---|
| Minimum deposit per financial year | ₹500 |
| Maximum deposit per financial year | ₹1.5 lakh |
| Deposit by this day for same-month interest | 5th of the month |
| Number of deposits in a year | Up to 12, in lump sum or parts |
| Who can open | Resident individuals only |
You can deposit the full ₹1.5 lakh in one go or split it across the year, but you cannot exceed ₹1.5 lakh in total across all your deposits in one financial year. Deposits above the limit do not earn interest and do not get a deduction.
If you miss the ₹500 minimum in a year, the account becomes inactive. You can revive it by paying the missed minimum for each default year plus a penalty of ₹50 per year. Once revived, the account works normally again, including for interest and withdrawals.
How can I borrow or withdraw from PPF?
PPF is a 15-year scheme, but it is not fully locked. It gives you three ways to reach your money early.
Loan (years 3 to 6). From the third financial year up to the end of the sixth year, you can take a loan against the balance. The loan can be up to 25% of the balance at the end of the second year before the year in which you apply. The loan carries interest, and you must repay it before you can take another one.
Partial withdrawal (from the 7th year). From the seventh financial year onward, you can withdraw once a year. The maximum is 50% of the lower of two figures: the balance at the end of the fourth year before the withdrawal year, or the balance at the end of the year before the withdrawal year. The withdrawal is tax-free, and you apply with the prescribed form at your bank or post office.
Premature closure (after 5 years, limited grounds). Full closure before 15 years is allowed only after five completed years, and only for serious illness of the account holder or a dependent, higher education of the holder or a dependent, or a change of residency. On premature closure, the interest is paid 1% lower than the notified rate for the whole period. In most cases, a loan or a partial withdrawal is the better first option.
How does the money grow? A worked example
Say you deposit the maximum ₹1.5 lakh every year at the current 7.1% rate, and you deposit early in each financial year so every deposit earns interest for the full year.
- Total deposited over 15 years: ₹22.5 lakh
- Value at maturity after 15 years: about ₹40.7 lakh
- Interest earned: about ₹18.2 lakh — all of it tax-free
Compare that with a bank FD at a similar rate. On an FD, the interest is added to your income and taxed at your slab rate each year. At a 30% slab, a 7% FD leaves you with roughly 4.9% after tax. PPF keeps the full 7.1%, because no tax is charged at any stage. Over 15 years, that gap is worth lakhs.
The exact maturity figure moves with deposit timing and with future rate changes, since the government revises the rate every quarter. But the tax treatment does not move: whatever the rate, the interest and the maturity stay tax-free.
How does PPF compare with a bank FD and ELSS?
| Feature | PPF | Bank FD | ELSS fund |
|---|---|---|---|
| Tax on interest or growth | None | Taxed at slab rate; TDS above ₹50,000 a year (₹1,00,000 for senior citizens) | Long-term gains above ₹1.25 lakh taxed at 12.5% |
| Tax on maturity | None | No extra tax at maturity | No tax at maturity beyond the gains tax above |
| Deduction on contribution | Up to ₹1.5 lakh, old regime only | Tax-saver FD only, up to ₹1.5 lakh, old regime only | Up to ₹1.5 lakh, old regime only |
| Lock-in | 15 years (extendable) | 1–10 years; 5 years for tax-saver FD | 3 years |
| Risk | Government-backed, very low | Low, depends on the bank | Market-linked, higher risk and higher return potential |
| Returns | 7.1%, fixed by notification | Varies by bank, roughly 6–7.5% | Not fixed; past returns roughly 10–12% a year, not guaranteed |
PPF wins on safety and on tax. ELSS can beat it on returns, but the returns are not guaranteed and the gains above ₹1.25 lakh are taxed. A bank FD suits money you may need soon. For a long-term goal such as retirement or a child’s education, PPF is hard to beat on a post-tax basis.
Who should open a PPF account?
PPF suits you if you want a safe, long-term place for money you will not need for 15 years. It works well for:
- Salaried taxpayers in the old regime who want to use the ₹1.5 lakh deduction with zero risk.
- New-regime taxpayers who want a fully tax-free return without market risk.
- Parents saving for a child’s education, since a guardian can open an account for a minor.
- Anyone who wants a retirement pot that the tax department never touches.
It does not suit money you may need in the next few years. The 15-year lock-in is real, and the early-exit routes are capped. Keep emergency money in a savings account or a short FD, and use PPF for long-term goals.
Common mistakes to avoid
- Depositing after the 5th. A deposit on the 10th earns no interest for that month. Deposit by the 5th, and ideally by 5 April for lump sums.
- Expecting an 80C deduction in the new regime. The deduction under Section 123 needs the old regime. In the new regime you keep the tax-free interest, but not the deduction.
- Opening a second account. One person, one account. A second account earns no interest and creates paperwork to merge it.
- Missing the ₹500 minimum. One missed year makes the account inactive. Set a yearly reminder or a standing instruction.
- Closing early without checking the cost. Premature closure cuts the interest rate by 1% for the whole period. A partial withdrawal from the 7th year is usually cheaper.
Frequently asked questions
Is PPF interest taxable under the new tax regime?
No. PPF interest is fully tax-free under both the old and the new regimes. What the new regime removes is the deduction for your deposit, which now sits in Section 123 (formerly Section 80C). The interest and the maturity amount stay tax-free either way.
Can I withdraw money from PPF before 15 years?
Yes, in three ways. You can take a loan in years 3 to 6, make one partial withdrawal a year from the 7th year onward (up to 50% of the lower of the two balances the rules specify), or close the account early after five years on limited grounds such as serious illness or higher education. Partial withdrawals and maturity payouts are tax-free.
Can I have two PPF accounts?
No. An individual can hold only one PPF account in their own name, plus accounts for minor children as guardian. A second account in your own name is treated as irregular: it earns no interest, and its balance is merged into your first account within the yearly limit, with any excess refunded without interest.
Can an NRI continue a PPF account?
Yes, if the account was opened while you were a resident, you can keep it until maturity. But you cannot extend it after becoming an NRI, and you cannot open a new PPF account as an NRI. Change of residency is also one of the permitted grounds for premature closure after five years.
Can I continue PPF after 15 years?
Yes. You can extend the account in blocks of five years, with or without fresh contributions. With contributions, you keep depositing up to ₹1.5 lakh a year and can withdraw once a year under the extension rules. Without contributions, the balance keeps earning the notified rate and you can still withdraw once a financial year.
What happens if I miss the ₹500 minimum deposit?
The account becomes inactive. To revive it, pay the missed ₹500 for each default year plus a penalty of ₹50 per year, and submit a revival request to your bank or post office. Once revived, the account works normally again for interest, loans and withdrawals.
Official sources
- Income Tax Department, Government of India — https://www.incometaxindia.gov.in/
- Department of Economic Affairs, Ministry of Finance (notifies small savings rates) — https://dea.gov.in/
- India Post, Public Provident Fund scheme — https://www.indiapost.gov.in/
Reviewed by Asuthod Rathod, CA — Last updated: 2 November 2026
Disclaimer: This article is for general information only and is not tax advice. Tax rates and scheme rules change through notifications, so check the official portals above or consult a qualified professional before acting.
Editorial byline for eircicai tax saving guides — covering 80C investments, ELSS, PPF, NPS, and regime comparison. Content is reviewed by Asuthod Rathod, CA.