Is PPF Interest Taxable?

PPF or Public Provident Fund are one of the favourites of people, looking for tax-saving investment options. However, is the entire amount of PPF tax exempted or the ppf interest taxable or is also exempted from taxable income, let’s find out.

What is PPF?

A Public Provident fund (PPF) is an investment instrument offered by the central government for long-term investment purposes. In this fund, everyone who is resident in this country can invest their money. It was started back in 1968 especially for self-employed people or workers in the unorganised sector as they don’t get the benefit of the employee provident fund scheme. The PPF scheme got popular due to its tax benefits and also for the risk-free tag that it holds.

Features of Public Provident fund investment

Public Provident Fund investments have some great features which you need to know before you start investing in them.

Eligibility criteria :

The eligibility criteria for investing in this scheme includes –

• Resident Indian
• Any age
• Minimum investment Rs. 500 and the maximum is Rs. 1.5 lakhs in a year.

Investment type :

You can make a lump sum investment in a year or also go for instalment-basis investments but it should be in the multiples of Rs. 500. There is no limitation on the number of instalments in a year.

Interest rate : The rate of interest on the PPF scheme keeps on changing as per the government’s regulations. As of now, the interest rate is 7.1% as per the ppf interest rate 2022-23. The interest is calculated on the lowest balance available in the PPF account between the 5th day of a calendar month and the last day of the month.

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Investment tenure :

The duration for which you can invest in the PPF account is 15 years. However, it can be extended beyond this year as well. The investments have to be made continuously for the first 15 years and then, you can withdraw the amount, or keep it as it is, and extend the tenure in the blocks of five years. However, there is a thing that you need to consider and that is the PPF account becomes activated at the end of the year and thus, it takes 16 years to mature. It means if you start investing in 2023’s June, the interest will start getting calculated from December 2024, and the 15th year's interest will be calculated in 2038’s December, and then the account will mature in 2039, which is the 17th year from the date of first investment.

Account holder :

Only individuals and minors can have a PPF account and for the minor, the guardian has to open the same on their behalf.

Nomination :

There is a nomination facility available for PPF account holders. You can nominate any of your relatives or anyone who can access the account after your demise.

Public Provident Fund (PPF) Investment and Returns

Now coming to the most interesting part of the Public Provident Fund which as an investor you are eagerly waiting for – returns on your investment. PPF is a risk-free investment option, there is no risk of losing your investment or returns. It offers guaranteed returns and the interest rate is fixed by the government. As mentioned above, it is at present 7.1% and it is subject to change. While the return on investment if compared with equity investments may seem lower but you also need to consider the fact that there is no risk involved like that of equity investments.

Withdrawals from the PPF account

Both premature withdrawal and at the time of maturity are allowed from your PPF account with certain clauses. Let’s find out both the withdrawal provisions separately.

Withdrawal after the maturity

After the completion of 15 years which is the maturity tenure for a Public Provident Fund account, you will have three options regarding the corpus accumulated in it and the account.

• You can withdraw the entire amount and then close the ppf account. You need to fill and submit form C to the bank or to the post office where you have your PPF account. They will process the application and your entire amount in the PPF account will get credited to your bank account which is linked to the PPF account.
• You can continue the PPF account if you do not wish to close it, even without making any contribution to it after the completion of the 15 years. In this case, the interest will keep on accruing on the balance amount of the account and you can withdraw from the account once every financial year, however, the amount of withdrawal can be any amount, without any cap on it.
• You can also continue the PPF account with further contributions even after the completion of the 15 years tenure. You have to extend the account for five years at a time, and you can extend for any number of times you want to. If you wish to contribute any amount in the Public Provident Fund account even after the 15 years of the maturity, then you will not earn any interest on the extra amount deposited after 15 years and neither will you get any deductions in your income tax for this contribution unlike in the first 15 years. This will discuss in detail in the next section of the article. You can withdraw up to 60% of the amount in the account at the beginning of the extension period and the number of withdrawals that you can make is one in each year of the total five years.

Premature withdrawal

The Public Provident Fund scheme offers a premature withdrawal facility as well and thus you can withdraw a certain amount out of the total amount in the PPF account before the completion of the entire 15 years. After completion of 5 years from the year-end of the date of initial investment, you can start withdrawing from the account. This means if you started investing in the ppf account in 2023, then after five years means in 2029, you can start withdrawing any amount. You can withdraw the least 50% of the balance available at the end of the 4th year or the end of years preceding the year of withdrawal.

Suppose you have invested the following and the total corpus accumulated is given according to the years –

Year	Investment amount (Rs.)	Total corpus (Rs.)
2023	50,000	50,000
2024	50,000	1,00,000
2025	60,000	1,60,000
2026	80,000	2,40,000
2027	1,50,000	3,90,000
2028	90,000	4,80,000
2029	1,00,000	5,80,000
2030	1,10,000	6,90,000

Now, if you want to make a premature withdrawal from your account in 2030, then the least of –

• 50% of the 4th year’s end balance which will be 2026’s balance which is Rs. 240000, then 50% means Rs. 120000.
• 50% of the preceding year’s end balance that is of 2029’s balance is Rs. 580000, and 50% of this amount will be Rs. 290000.

So, you can withdraw Rs. 120000 in the year 2030 as that is the lower of the two amounts.

Is PPF interest taxable?

Before digging into whether the interest amount of the PPF account is taxable or not, let’s understand the wholesome scenario. The amount you invest in a PPF account in a year can be used for availing ppf deduction under section 80C of the income tax Act, with a maximum limit of Rs. 1.5 lakhs per annum which is eventually the maximum limit of investment in a ppf account in a given year.

Now coming to the interest accrued, this is also exempted from tax whether while accumulating or when withdrawn.

So, when you withdraw any amount from the PPF account that is also entirely tax exempted. This means you get a tax benefit for depositing the amount into your PPF account, also for the interest amount you earn on the investment. This ppf interest exempt under section 10 (11) of the Income Act, 1961.

Navigate Tax Changes: Stay up-to-date with the latest income tax slab revisions and ensure your financial decisions are in sync with the new rates.

Loans against Public Provident Fund (PPF)

While PPF is great as a risk-free investment option, it also offers other important benefits which include one of the most required benefits which are keeping the PPF account as security/ collateral. Yes, you can avail loan against your PPF account between the 3rd and the 6th year of the investment tenure.

Loan amount :

You can avail of up to 25% of the balance of the 2nd financial year preceding the year when you are applying for the loan. This means, if you are applying for a loan against PPF in April 2023, then the balance of the PPF account for March 2022 will be taken into account for calculating the loan amount.

Interest charges :

If you are availing loan against a PPF account, then you have to pay interest at a rate 1% higher than the interest earned on the PPF account. For instance, the current interest rate on the PPF scheme is 7.1%, so, the interest charges on loans against PPF will be 8.1% at present.

Repayment tenure :

You need to repay the loan amount within 36 months of availing of the loan. If not repaid within the due time, then the interest charge will be hiked and the 1% above the interest rate earned will then be 6%.

Repayment terms :

In case you repaid the principal amount, but there is a portion of the interest amount which is unpaid, then that amount will be deducted from the PPF account balance, provided you do not repay within the due time.

A number of loans :

You can avail of only one loan at a time against your PPF account. Once you repay the amount, you can take another loan, but only twice you can avail loan against PPF.

PPF defaults and revival

In case your PPF account has been discontinued due to no investment, you can revive the account by sending a written request to the post office or the bank where you have your account. Then you need to deposit Rs. 500 for at least a year to continue the account.

Limitations of PPF account

While a PPF account has all the features that an average investor in India looks for, however, it has certain limitations such as –

Longer lock-in period :

If not the entire amount, but most of the amount in your PPF account gets locked in for fifteen years which is one of the highest lock-in-period amongst all other investment instruments.

Lower interest rate :

The interest earned on PPF is comparatively on the lower side of the spectrum. This may be a bit higher than your regular fixed deposits but not at all lost to the returns earned on other investment instruments like ELSS and others.

Limitation on investment :

You can only invest up to Rs. 1.5 lakhs in a year in your PPF account, so even if you want to invest more, you cannot.

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Conclusion

If you are wondering if is ppf taxable or not, then the entire amount of interest is tax-free and even the amount you invest in the PPF account is available for deduction. This is not the only thing which makes the scheme so popular, it is also the risk-free nature, guaranteed returns, and facilities like availing loan against PPF that makes this investment option viable for all.