PPF
The Public Provident Fund (PPF) is a long-term government-backed savings scheme in India offering tax-free returns under the EEE (Exempt-Exempt-Exempt) framework, with a 15-year lock-in period and interest rates set quarterly by the Ministry of Finance.
PPF was introduced in India in 1968 under the Public Provident Fund Act and had since become one of the most trusted fixed-income savings instruments for salaried and self-employed individuals alike. Its defining feature was the triple tax exemption: contributions up to Rs 1.5 lakh per year qualified for deduction under Section 80C of the Income Tax Act, the interest earned was tax-free, and the maturity corpus was completely exempt from tax. This EEE status made PPF uniquely attractive, particularly for investors in the 30 percent income tax bracket where the effective post-tax return was substantially higher than the nominal rate.
The interest rate on PPF was set by the Ministry of Finance on a quarterly basis, though in practice the rate changed infrequently. The rate stood at 7.1 percent per annum for multiple consecutive quarters through 2023–24. Interest was calculated on the minimum balance between the 5th and the last day of each month, making it advantageous to deposit before the 5th of April at the start of each financial year to maximise annual interest.
The 15-year lock-in made PPF unsuitable for short-term goals but ideal for long-term objectives like retirement planning or building a child's education corpus. After the initial 15-year term, the account could be extended in five-year blocks with or without additional contributions. Partial withdrawals were permitted from the seventh year onward, and loans against the PPF balance were available from the third year up to the sixth year, providing a degree of liquidity within the otherwise illiquid structure.
A significant feature was that PPF accounts could not be held jointly and could not be attached by court order for debt recovery (with the exception of government dues), providing a form of creditor protection that made PPF a unique wealth-preservation instrument for business owners and self-employed professionals who faced legal and financial risks not faced by salaried employees.
NRIs were not permitted to open new PPF accounts after October 2017, though those who had opened accounts before becoming NRI were allowed to continue until maturity. The Rs 1.5 lakh annual contribution limit applied per individual, and accounts could be opened at post offices or scheduled commercial banks. A minor child's PPF account could also be opened and managed by a parent, though contributions to both accounts combined counted toward the parent's Rs 1.5 lakh 80C limit.