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    How to calculate interest on PPF balance

    Synopsis

    According to PPF rules, the interest is calculated on a monthly basis but it is credited into the account at the end of financial year on March 31.

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    Interest becomes payable for that month if the deposit is made before the fifth of that month.
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    The Public Provident Fund (PPF) is one of the most popular investment options. Not only does it offer tax-savings under section 80C of the Income Tax Act, but the interest earned on it and maturity amount are also exempt from tax.

    The interest rate applicable on PPF investments is reviewed and announced by the government every quarter. For the quarter ending March 31, 2020, the interest rate offered is 7.9 per cent per annum (compounded yearly).

    According to PPF rules, the interest is calculated on a monthly basis but it is credited into the account at the end of financial year on March 31. Interest becomes payable for that month if the deposit is made before the fifth of that month.

    One can invest a minimum Rs 500 and maximum of Rs 1.5 lakh in a financial year. Here's how interest is calculated in case of lump-sum and monthly contributions.

    • Monthly contributions
    Suppose you are investing Rs 12,500 per month. Let us assume that the interest rate for PPF is 7.6 per cent and remains constant througout the financial year. Here's how your PPF interest will be calculated:

    Date of Deposit Balance on 5th of Month (Rs.) Balance on End of month (Rs.) Minimum balance (Rs.) Interest credited (Rs.) If deposit is before 5th, Interest would be (Rs.)
    02-Apr-17 12,500 12,500 12,500 79.17 79.17
    06-May-17 12,500 25,000 12,500 79.17 158.33
    07-Jun-17 25,000 37,500 25,000 158.33 237.50
    03-Jul-17 50,000 50,000 50,000 316.67 316.67
    03-Aug-17 62,500 62,500 62,500 395.83 395.83
    04-Sep-17 75,000 75,000 75,000 475.00 475.00
    05-Oct-17 87,500 87,500 87,500 554.17 554.17
    07-Nov-17 87,500 1,00,000 87,500 554.17 633.33
    07-Dec-17 1,00,000 1,12,500 1,00,000 633.33 712.50
    04-Jan-18 1,25,000 1,25,000 1,25,000 791.67 791.67
    04-Feb-18 1,37,500 1,37,500 1,37,500 870.83 870.83
    04-Mar-18 1,50,000 1,50,000 1,50,000 950.00 950.00
    5858.33 6175.00

    The total interest credited into your account is Rs 5,858.33 for that financial year. Had you been depositing your money into the PPF account on or before 5th of every month, then you would have earned Rs 316.67 more in the financial year.

    • Lump-sum contribution
    On the other hand, interest is calculated as follows in case you make a one-time lumpsum deposit during the fiscal:
    Date of Deposit Contribution Balance on 5th of Month (Rs.) Balance on End of month (Rs.) Minimum balance (Rs.) Interest credited (Rs.)
    02-Apr-17 1,50,000 1,50,000 1,50,000 1,50,000 950.00
    06-May-17 - 1,50,000 1,50,000 1,50,000 950.00
    07-Jun-17 - 1,50,000 1,50,000 1,50,000 950.00
    03-Jul-17 - 1,50,000 1,50,000 1,50,000 950.00
    03-Aug-17 - 1,50,000 1,50,000 1,50,000 950.00
    04-Sep-17 - 1,50,000 1,50,000 1,50,000 950.00
    05-Oct-17 - 1,50,000 1,50,000 1,50,000 950.00
    07-Nov-17 - 1,50,000 1,50,000 1,50,000 950.00
    07-Dec-17 - 1,50,000 1,50,000 1,50,000 950.00
    04-Jan-18 - 1,50,000 1,50,000 1,50,000 950.00
    04-Feb-18 - 1,50,000 1,50,000 1,50,000 950.00
    04-Mar-18 - 1,50,000 1,50,000 1,50,000 950.00
    11400.00

    If the date of deposit in case of lump-sum contribution had been after 5th of April, in that case, you would have not earned the interest for the month of April. The interest earned in that case would have been Rs 10,450.

    Watch outs
    PPF scheme rules 2019 have removed the restrictions on the maximum number of contributions that can be made in a single fiscal year. However, the maximum contribution in a fiscal year cannot exceed Rs 1.5 lakh.

    Also Read: Here's how your PPF account may become irregular


    1. What is the PPF interest rate for FY 2019-20?
      The PPF interest rate is reviewed and announced by the government every quarter. The interest rates for FY 2019-20 are as follows: April-June, 2019: 8 percent; July-September, 2019: 7.9 percent; October-December, 2019: 7.9 percent; and January-March, 2020: 7.9 percent.

    2. How can I maximise the benefit of investing in PPF?
      To maximise the benefit of investing in PPF, one should ideally make contributions before the 5th of every month in case of monthly contributions. For lump sum contributions, the amount must be invested before April 5. This is because deposits made before the 5th of the month will fetch you full interest for that month.
    3. How is PPF interest due to my account calculated?
      The PPF interest amount due to your account is calculated every month on the lowest balance at the credit of account from the close of the 5th day of the month and the end of the month.
    4. When is interest credited to my PPF account?
      The interest in your PPF account is calculated every month but is credited at the end of the financial year.
    5. When will the interest get credited to my PPF account if I transfer it?
      According to PPF Scheme, 2019, interest shall be credited at the end of the financial year irrespective of the change of the account office due to transfer of the account during the year.
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    2 Comments on this Story

    Fatema 205 days ago
    Here are some more articles that I referred about fundamental difference between EPF & PPF- https://learn.quicko.com/difference-between-epf-and-ppf
    And features and eligibility of PPF in detail here- https://learn.quicko.com/ppf-public-provident-fund
    Javed215 days ago
    I have heard due to covid-19 for financial year ppf can be deposited till 30 June. In that case if some one wants to deposit amount before 5 April for 2020-21 (financial year), then will it be counted for 2019-20 or 2020-21?
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