Public Provident Fund (PPF) Returns
05 December, 2023
Introduced in 1968 by the National Savings Institute of the Ministry of Finance, Public Provident Fund (PPF) is an incredible financial instrument you can invest in for substantial wealth creation, while enjoying tax benefits. PPFs comes with a long lock-in period, allowing you to meet your long-term financial goals. You can open a PPF Account with banks or the post office. You also earn interest on your deposits which you can calculate easily. In this article, you can find out how your PPF returns are calculated.
PPF – An overview
Here’s what you need to know about a PPF Account:
PPF is a long-term investment scheme as it follows a lock-in period of 15 years.
The minimum investment amount is ₹500, while the maximum investment amount is ₹1.5 lakh in a financial year.
You can make partial withdrawal after seven years.
You can also avail loan against your PPF balance within 3rd to 6th year of PPF.
PPF is backed by the sovereign. You need not worry about capital loss as the interest rates are not market-linked.
You can only have one PPF Account across the country.
PPF returns
Your returns in PPF are based on the deposit amount, the time of deposit and the applicable interest rate. The Indian Government revises the PPF interest rate every quarter. The PPF interest rate is 7.1% for FY 2023-2024, Q2.
Invest an amount that's within your financial capacity and capable of creating a desirable corpus value. You can invest by making monthly contributions or a lumpsum contribution.
How are PPF returns calculated?
Here are key points you need to keep in mind when calculating your PPF Account’s returns.
The interest on PPF is calculated on a monthly basis.
The lowest balance on a specific month's 5th and end date is considered for interest calculation. Let's say your account balance on 5th May is ₹ 5,000, and 30th May is ₹ 10,000. The interest will be calculated on ₹ 5,000.
You must try to deposit your monthly contribution on or before the 5th of the month to maximise PPF returns.
Your PPF returns will be credited to your account at the end of the financial year.
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PPF has no restrictions on when you can deposit money in the account so long as you abide by the minimum and maximum contributions.
Let’s say you have been investing in PPF for two financial years and you have accumulated ₹20,000 in your account.
Let’s say in the third financial year, you deposit ₹5,000 in the month of May.
Case 1: If you deposit ₹5,000 between 5th May and 31st May
Since the lowest balance between the 5th and end of the month is calculated for PPF returns, you will essentially earn interest on ₹20,000 and not on ₹25,000.Case 2: If you deposit ₹5,000 before 5th May
Now, your account balance for May will be ₹25,000 (₹20,000 as the previous year’s contribution and ₹5,000 as the ongoing year’s contribution). Your account balance between the 5th and the end of the month will remain constant, i.e., ₹25,000 and interest will be calculated basis this amount.
Hence, it is recommended that you make deposits in your PPF investments before the 5th of month.
Use the online PPF calculator to know your returns
The online PPF calculator is a useful tool you can use to obtain a fair idea about PPF interest returns and maturity value. Having a clear idea about your investment may help you plan it better and manage other finances without facing any hassles.
PPF returns - Taxation
PPF comes under the Exempt-Exempt-Exempt category. In simple terms, PPF deposit amount, interest earnings, and maturity value are entirely tax-free. You can claim the tax benefits under Section 80C, by following the maximum deduction limit is ₹1.5 lakh. For interest exempt, PPF follows Section 10 of the I-T Act.
You can claim the tax benefits while filing Income Tax Return (ITR) at the end of every financial year. You are required to support your tax benefit claim with proof of investment documents.
Open a PPF Account online with HDFC Bank
As an existing HDFC Bank customer, you can log into the NetBanking or Mobile Banking and open your PPF Account instantly. You can also visit your nearest HDFC Bank branch to open a PPF Account, Click here to locate the nearest branch around you. If you have an existing PPF Account with another bank or the post office, you can transfer it to HDFC Bank by submitting a transfer request form where the account is held. You can check with your PPF account balance and obtain the statement within minutes at HDFC Bank.
*The information provided in this article is generic in nature and for informational purposes only. It is not a substitute for specific advice in your own circumstances. You are recommended to obtain specific professional advice from before you take any/refrain from any action. Investments are subject to changes in tax laws. Please contact a professional consultant for an exact calculation of your liabilities.
