Public Provident Fund
Also written PPF · Public Provident Fund (PPF)
A 15-year government-guaranteed savings account for individuals, at a rate reset quarterly, where the contribution, the interest and the maturity value are all outside tax under the old regime.
In plain language
The PPF is the plainest long-horizon savings product in the paper and, for a retirement adviser, one of the most useful. It is a 15-year deposit with a bank or a post office, the government guarantees both interest and principal, and the interest is not paid out — it stays in the account and compounds.
What makes it distinctive is the tax treatment. The contribution is deductible, the annual interest is exempt, and the maturity value is tax free. Very little else in India is exempt at all three stages.
The restrictions are the point, not a defect. Money you cannot easily take out is money still there at 60.
How it works
Who. Individuals only. One account per individual, plus one that may be opened in the name of a minor. HUFs and NRIs cannot open a PPF account.
Return. A debt-oriented investment paying periodic interest announced by the government every quarter. The rate is therefore not fixed for the life of the account — a point the workbook makes about small savings schemes generally.
Limits. Minimum Rs 500 a year, maximum Rs 1,50,000 a year, in one lump sum or any number of instalments in a financial year.
Liquidity, and its timetable.
| Facility | When |
|---|---|
| Loan against the balance | 4th to 6th year, on the balance standing between the 3rd and 5th financial year |
| One withdrawal per financial year | from the 7th financial year, to permissible limits |
| Premature closure | after at least 5 years, for specified needs such as medical expenses or the education of dependents |
| Maturity | 15 years |
Tax. The annual contribution is deductible under section 123 read with Schedule XV of the Income-tax Act, 2025 (corresponding to section 80C of the 1961 Act), within the aggregate limit and subject to conditions. This deduction is not available under the new tax regime under section 202 (corresponding to section 115BAC). The interest earned each year is exempt and the maturity value is tax free.
A worked example
An adviser maps a 45-year-old's PPF account to a retirement goal at 60. He contributes the maximum, Rs 1,50,000 at the end of each financial year, for 15 years.
The declared rate is reset every quarter by the government, so no rate can be assumed from the workbook. Take 7 per cent purely as an illustration — the arithmetic, not the rate, is the lesson.
FV = 1,50,000 × [((1.07)^15 − 1) ÷ 0.07]
= 1,50,000 × 25.129
= Rs 37,69,350
| Amount | |
|---|---|
| Contributed over 15 years | Rs 22,50,000 |
| Interest credited | Rs 15,19,350 |
| Maturity value | Rs 37,69,350 |
| Tax payable on the interest | Nil |
| Tax payable on maturity | Nil |
Rs 15.19 lakh of interest reaches him whole. For a taxpayer in the 30 per cent slab under the old regime, earning the same Rs 15.19 lakh in a taxable deposit would leave about Rs 10.6 lakh after tax — a gap of roughly Rs 4.6 lakh over the term, before counting the deduction claimed on the way in.
Against that, note what the account will not do. If the same person needs Rs 5 lakh in year 3 for a medical emergency, the PPF gives him a loan, not a withdrawal — withdrawals start in the 7th financial year.
Why NISM asks about it
Chapter 6 (Retirement Planning Products: Other Investment Products) profiles the PPF under the standard six headings the paper uses for every product — nature, return, risk, tenor, limits, liquidity, taxability, suitability for accumulation — and Chapter 2, section 2.10.4, lists it first among the small saving instruments. Expect the Rs 500 / Rs 1,50,000 limits, the 15-year tenor, the loan-and-withdrawal timetable, and the HUF/NRI exclusion as direct recall. Suitability questions ask why a product with restricted withdrawals is well suited to the accumulation stage.
Common exam traps
- The rate is not fixed for 15 years. It is announced quarterly by the government. Any question implying a locked-in rate for the term is wrong, and any corpus projection is an assumption.
- Loan and withdrawal are different facilities on different clocks. Loan in the 4th to 6th year; one withdrawal a year from the 7th financial year; premature closure only after 5 years and only for specified needs.
- The workbook itself gives two different instalment multiples — Chapter 2 says multiples of Rs 50 and Chapter 6 says multiples of Rs 5. The Rs 500 minimum and Rs 1,50,000 maximum are consistent across both; if a question turns on the multiple, note the conflict rather than guessing.
- One account per individual, plus one for a minor. Two accounts in one name is not permitted.
- HUFs and NRIs cannot open a PPF account. This is asked directly.
- The Rs 1,50,000 deduction is an aggregate, not a PPF allowance. It is shared with every other section 123 / Schedule XV product, and the workbook's worked example on best use of the limit turns on exactly that.
- The deduction is an old-regime benefit. It is not available under section 202 (the new regime) — though the exemption of the interest and maturity value stands on its own footing.
Check yourself
1.Which of the following is TRUE about the Public Provident Fund?
- a)HUFs and NRIs may open a PPF account, but only one each
- b)Individuals only may open it, one account each, with one further account permitted in the name of a minor; HUFs and NRIs cannot
- c)Any number of accounts may be held provided the total does not exceed Rs 1,50,000 a year
- d)It has a tenor of 5 years, extendable in blocks of 3 years
Show the answer
Answer: (b) Individuals only may open it, one account each, with one further account permitted in the name of a minor; HUFs and NRIs cannot
"It can be opened with prescribed banks and post offices BY INDIVIDUALS ONLY. EACH INDIVIDUAL CAN HAVE ONLY ONE PPF ACCOUNT AND ONE ACCOUNT CAN BE OPENED IN THE NAME OF A MINOR. HUFs AND NRIs CANNOT OPEN A PPF ACCOUNT."
Option (d) borrows the tenor of the Senior Citizens Saving Scheme — five years extendable in three-year blocks. The PPF is ⚠️ a 15-YEAR deposit, with closure permitted on the completion of at least five years for specific needs such as medical expenses or education of dependents.
The other figures to hold:
- Minimum Rs 500 a year, maximum Rs 1,50,000 a year, in multiples of Rs 5, lump sum or any number of instalments
- Interest announced every quarter, ⚠️ NOT PAID OUT — it compounds in the investment
- ⚠️ LOAN in the 4th to 6th year; WITHDRAWAL once a year from the SEVENTH financial year
- ⚠️ Exempt at all three stages — deduction going in, interest exempt, maturity value tax free
2.A salaried subscriber contributes Rs 1 lakh to Provident Fund, Rs 50,000 to PPF, repays Rs 50,000 of housing loan principal and puts Rs 60,000 into NPS. Under the old regime, what is the best use of the deductions available?
- a)Rs 1.50 lakh under section 123 and Rs 50,000 under section 124(3) for the NPS contribution
- b)Rs 2.10 lakh, all under section 123
- c)Rs 1.50 lakh under section 123 only, since NPS falls within the same basket
- d)Rs 60,000 under section 124(3) and Rs 1.50 lakh under section 123, giving Rs 2.10 lakh
Show the answer
Answer: (a) Rs 1.50 lakh under section 123 and Rs 50,000 under section 124(3) for the NPS contribution
This is the workbook's own example. The best use is:
- ⚠️ Rs 1.50 lakh for products covered under section 123 read with Schedule XV (corresponding to section 80C)
- ⚠️ Rs 50,000 under section 124(3) for the NPS contribution (corresponding to section 80CCD(1B))
Total Rs 2 lakh. The technique is to fill the Rs 1.50 lakh basket with the non-NPS items — PF, PPF and housing loan repayment total exactly Rs 2 lakh, so Rs 1.50 lakh of them saturates it — leaving NPS money free for the separate Rs 50,000.
Option (d) fails because only Rs 50,000 of the Rs 60,000 NPS contribution qualifies under 124(3); the cap is Rs 50,000, not the amount contributed.
⚠️ The anti-double-counting rule: the Rs 50,000 is available "SUBJECT TO THE CONDITION THAT THE SAME AMOUNT IS NOT ALSO CLAIMED UNDER SECTION 123."
Compare the second example — NPS Rs 1.50 lakh and PPF Rs 50,000 gives the same Rs 2 lakh, but composed as Rs 1 lakh of NPS plus Rs 50,000 PPF under section 123, and Rs 50,000 under 124(3).
3.At which three stages of an investment may tax benefits be available?
- a)Purchase, transfer and sale
- b)Contribution, earnings and maturity
- c)Accumulation, transition and distribution
- d)Deduction, exemption and rebate
Show the answer
Answer: (b) Contribution, earnings and maturity
"THERE ARE THREE STAGES OF THE INVESTMENT AT WHICH TAX BENEFITS MAY BE AVAILABLE: CONTRIBUTION, EARNINGS AND MATURITY."
At CONTRIBUTION: deductions under section 123 read with Schedule XV up to Rs 1.50 lakh, plus an additional Rs 50,000 for NPS under section 124(3), and employer NPS contributions separately under section 124(1).
At EARNINGS: ⚠️ "Some investments, such as PPF, NPS, BONDS ISSUED WITH TAX FREE INTEREST INCOME, earn returns that are NOT CHARGED TO TAX WHEN THEY ARE EARNED... INVESTMENT WITH RETURNS THAT ARE NOT TAXED IMPLIES GROWTH AND COMPOUNDING AT HIGHER RATES."
At MATURITY: the PPF, the tax-exempt portion of NPS on closure, and the maturity value of EPF up to the prescribed limits.
Option (c) names the stages of the retirement goal, not of an investment's tax treatment — a plausible-looking distractor.
⚠️ The screening test the earning stage gives you: "PRODUCTS WHOSE INTEREST ARE TAXABLE SHOULD IDEALLY HAVE A POST-TAX RETURN COMPARABLE WITH THE TAX-FREE PRODUCTS TO BE CONSIDERED FOR THE ACCUMULATION PORTFOLIO." Tax at the earning stage compounds against you every year, which is why it hurts most over a long horizon.
Where this is taught
- Series X-B · Chapter 5: Retirement Productsintroduced here
- Series SEBI-ICE · Chapter 9: Government Schemes for Various Savings and Investment Optionsintroduced here
- Series XVII · Chapter 2: Financial Markets & Investment Productsintroduced here
- Series XVII · Chapter 6: Retirement Planning Products: Other Investment Products
Related terms
- Inflation riskThe risk that the money an investment pays out will be worth less in goods and services than expected, because prices have risen — highest in fixed-return products and most damaging to retirees.
- Atal Pension YojanaA government-guaranteed defined-pension scheme for unorganised-sector workers, paying a fixed Rs 1,000 to Rs 5,000 a month from age 60 for contributions started between ages 18 and 40.
- Accumulation stageThe working years, in which saving and investment build the retirement corpus — the stage where the ability to take risk is highest and where time, not contribution size, does most of the work.
- Voluntary Provident FundAn EPF member's option to contribute more than the mandatory 12% of basic and dearness allowance into the same EPF account, up to 100% of it, with no matching contribution from the employer.
- National Savings CertificateA five-year post office certificate with interest compounded annually and paid at maturity, minimum Rs 1,000 in multiples of Rs 100 with no maximum.
- Section 80CThe income-tax deduction for money put into life insurance, provident fund, ELSS, five-year bank deposits, NPS Tier 1, NSC and home-loan principal, capped in aggregate at Rs 1,50,000 a year.