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Calculate PPF Interest Rate in India for FY 2020-2021

PPF Interest Rate

PPF Interest Rate

The Ministry of Finance sets out the PPF interest rate which is paid off on 31st March. The current PPF interest rate for the April 2020 -June 2020 quarter is 7.1%.

The PPF interest is calculated every month on the lowest balance at the credit of the account balance between the close of the fifth day and the last day of every month.

The interest is calculated every month but is credited to the investor’s account at the end of the year. Ideally, the investor should invest a fixed amount of sum every month before the 5th to fetch the interest for the entire month. In this way, the investor can gain maximum return on the same.

What is PPF?

The Public Provident Fund scheme is a savings-cum-tax-saving instrument. It was introduced in the year 1968 by the National Savings Institute of the Ministry of Finance. The aim of this small savings scheme is to mobilize small savings among the investors.

Public Provident Fund scheme is an investment with reasonable returns combined with income tax benefits

Besides offering safety and returns, investing in a PPF scheme also offers tax benefits up to 1.5L under section 80C of the Income Tax Act.

Investors can use the PPF scheme as a tool to maintain a corpus for their retirement by putting a fixed amount regularly. PPF has a lock-in period of 15 years and can be extended in a block of 5 years.

PPF Account Interest Rate

The PPF account interest is paid on the amount standing in the investor’s account. The PPF interest rate is reviewed by the Government every quarter and over the past several years the return has been witnessing a downtrend.

Below is a table summarizing the PPF interest returns history:

Financial Year Time Period Returns (per annum)
2020-2021 April 2020 – June 2020 7.1%
2019-2020 January 2020 – March 2020 7.9%
2019-2020 October 2019 – December 2019 7.9%
2019-2020 July 2019 – September 2019 7.9%
2019-2020 April 2019 – June 2019 8.0%
2018-2019 January 2019 – March 2019 8.0%
2018-2019 October 2018 – December 2018 8.0%
2018-2019 July 2018 – September 2018 8.0%
2018-2019 April 2018 – June 2018 7.6%
2017-2018 January 2018 – March 2018 7.6%
2017-2018 October 2017 – December 2017 7.8%
2017-2018 July 2017 – September 2017 7.8%
2017-2018 April 2017 – June 2017 7.9%
2015-2016 April 2015 – March 2016 8.70%
2014-2015 April 2014 – March 2015 8.70%
2013-2014 April 2013 – March 2014 8.70%
2012-2013 April 2012 – March 2013 8.80%
2011-2012 April 2011 – November 2011 8.0%
2011-2012 December 2011 – March 2012 8.60%
2010-2011 April 2010 – March 2011 8.0%
2009-2010 April 2009 – March 2010 8.0%
2008-2009 April 2008 – March 2009 8.0%
2007-2008 April 2007 – March 2008 8.0%
2006-2007 April 2006 – March 2007 8.0%
2005-2006 April 2005 – March 2006 8.0%
2004-2005 April 2004 – March 2005 8.0%

How is the PPF rate of interest calculated?

As per the PPF rules, PPF interest rate calculation is on a monthly basis on the PPF balance in the investor’s account but is credited only at the end of the financial year on March 31st.

We will discuss how the interest will be calculated in the case of monthly and lumpsum payment to PPF account:

Monthly payments

Suppose Amit is investing Rs. 10,000 per month to the PPF account. Assuming the interest rate to be 7.9% p. a below is how the interest calculation will be made:

Date of investment Balance on the 5th of the month (Rs) Balance on the end of the month (Rs) Minimum Balance (Rs) Interest credited (Rs) Interest credited if the deposit is made before 5th (Rs)
02-04-2019 10,000 10,000 10,000 65.83 65.83
02-05-2019 20,000 20,000 20,000 131.67 131.67
07-06-2019 20,000 30,000 20,000 131.67 197.50
13-07-2019 30,000 40,000 30,000 197.50 263.33
03-08-2019 50,000 50,000 50,000 329.17 329.17
02-09-2019 60,000 60,000 60,000 395.00 395.00
02-10-2019 70,000 70,000 70,000 460.83 460.83
02-11-2019 80,000 80,000 80,000 526.67 526.67
02-12-2019 90,000 90,000 90,000 592.50 592.50
02-01-2020 100,000 100,000 100,000 658.33 658.33
02-02-2020 110,000 110,000 110,000 724.17 724.17
02-03-2020 120,000 120,000 120,000 790.00 790.00
5003.34 5135.00

Notice how PPF interest calculation is done in the highlighted rows in the above table. Essentially, you are losing on the interest if you are making a delay in payment which leads to an overall reduction in the interest earned.

Lump sum payments

Continuing the above example, suppose Amit is investing Rs. 1,50,000 as a lump-sum amount in the month of April itself. Below is how interest will be calculated in such a case:

Date of investment Balance on the 5th of the month Balance on the end of the month Minimum Balance Interest credited
02-04-2019 150,000 150,000 150,000 987.50
02-05-2019 150,000 150,000 987.50
07-06-2019 150,000 150,000 987.50
13-07-2019 150,000 150,000 987.50
03-08-2019 150,000 150,000 987.50
02-09-2019 150,000 150,000 987.50
02-10-2019 150,000 150,000 987.50
02-11-2019 150,000 150,000 987.50
02-12-2019 150,000 150,000 987.50
02-01-2020 150,000 150,000 987.50
02-02-2020 150,000 150,000 987.50
02-03-2020 150,000 150,000 987.50
11,850.00

What are the tax-saving benefits of PPF?

PPF operates on an Exempt-Exempt-Exempt (EEE) model wherein all the investments made towards PPF are deductible under section 80C of the Income Tax Act. The withdrawal made from the account at the time of account closure is also exempt along with the accumulated interest.

The investors cannot withdraw the amount from PPF before the completion of the lock-in period of 15 years. The entire amount of money in a PPF account belongs to the account holder for life and is payable to the nominee(s) of the person after his/ her death.

How to check your PPF account balance?

Checking your PPF account balance can be done both online and offline. PPF account balance can be checked online only for those investors whose PPF accounts are held with the bank. All you need is your internet banking to be activated and you can check the status and balance your PPF account at any time.

For checking the balance offline, you need to visit the bank branch and get the PPF passbook updated. The passbook contains, date-wise, details of the investments made, interest credited and the balance in your account.

To make the customer experience easy, many banks have started to provide kiosks in their branches or ATMs wherein you can update your passbook at your convenience.

Advantages of PPF Account

Below are a few advantages of a PPF account:

  • Investment in PPF enables the investors to claim a tax exemption up to Rs. 1.5 lakhs in a year under section 80C of the Income Tax Act.
  • It helps the investors in maintaining a retirement corpus to ensure financial stability post their retirement. Investors can invest either monthly or lump sum payments towards their investment.
  • In case of financially difficult times, a loan can be taken against your balance standing in your PPF account. However, this facility is available only from the 3rd year to 6th year from investment.
  • PPF accounts can be extended after the completion of 15 years in a block period of 5 years.

What is the latest PPF Interest Rate?

The latest PPF interest rate fixed by the Ministry of Finance for the quarter April 2020 to June 2020 of the financial year 2020-2021 is 7.10% per annum. In our PPF Calculator we consider the latest PPF interest rate i.e. 7.10%

PPF interest rate for the quarter April 2020 to June 2020 was 7.10%.

Which is a better PPF or Fixed Deposit?

This question usually comes up in the investor’s mind while making the investment. Even though both are relatively safe investments, people always wonder which one would be better for their purpose.

Below table illustrates the difference between PPF and fixed deposit:

Particulars PPF Fixed Deposit
Period of investment The maximum period of investment is 15 years. It does not provide any other investment period. The fixed deposit provides flexible investment periods. The investors can make an investment for as low as 60 days.
Loan against investment It offers loan against the investments made only after 3 years of completion One can get a loan against fixed deposit as per their needs. However, different banks have different rates of interest and repayment periods.
Rate of Interest The rate of interest is set up by the Government on a quarterly basis. The rate of interest is set by the bank
Premature Withdrawal Such withdrawals are allowed only after the 5th year and to a limited extent. Premature withdrawal is allowed subject to a small fee charged by the bank.

Frequently Asked Questions.

Is interest on PPF taxable?

PPF scheme falls under the EEE (Exempt, Exempt, Exempt) tax category. This means a contribution made towards PPF is allowed as a tax deduction under section 80C of the Income Tax Act and the interest earned thereon is exempt under section 10(11) of the Act.

Why is PPF interest not credited yet?

The interest in your PPF account is calculated every month but is credited at the end of the financial year i.e. 31st March of every financial year. You must check your PPF account balance after this day

What is the best time to invest in PPF?

The interest is calculated on the lowest balance in the PPF account between the 5th day and the end of the month.
If an investor deposits an amount before the 5th of each month, the investor will get interest for that month on that deposit. Otherwise, the interest is calculated on the previous balance

Should I invest monthly or yearly in PPF?

Investing in PPF is beneficial if you are investing before the 5th of the month. This investment can be made monthly or lump sum. Investing in a PPF scheme monthly or lump sum depends on the liquidity of funds an investor has.
If you have received a lump sum amount, you can invest in a lump sum in a PPF scheme. Investing month on month brings a discipline within you to save an amount and mobilize it towards an investment and a long term goal.

Can I change the PPF amount every year?

Yes, the investment amount can be changed in PPF each year. The minimum investment still has to be Rs. 500 in order for your account to be active.

Published on April 2, 2020