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How to Calculate Interest on Public Provident Fund (PPF) Balance

Representative photo. (Image: Reuters)

Representative photo. (Image: Reuters)

The interest rate applicable to the PPF is reviewed and announced every quarter by the government. According to the latest decision by the government, the interest rate on PPF offered is 7.9 per cent (compounded yearly).

Over the years, the Public Provident Fund (PPF) has emerged as one of the safest saving-cum-investment options. The PPF offers tax-saving benefits under section 80C of the Income Tax Act and the interest earned on it as well as the maturity amount is tax-free as well.

The interest rate applicable to the PPF is reviewed and announced every quarter by the government. According to the latest decision by the government, the interest rate on PPF offered is 7.9 per cent (compounded yearly).

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

Although the lock-in period is 15 years for a PPF, one has the option of withdrawing some amount of this or take loans after 7 years. On current rates, the returns that you will get from PPF is much more attractive as compared to the bank FDs.

The formula for calculating interest on PPF is: F = P[({(1+i)^n}-1)/i]. In this, F = Maturity proceeds of the PPF; P = Annual installments, n = Number of years, i = Rate of interest/100.

Let us suppose that you are investing, Rs 12,500 per month and the interest rate on PPF is 7.6 per cent and remains constant through the financial year. The total interest credited into your account will be Rs 5,858.33 for that financial year.

To maximise the benefits of investing in PPF, one should ideally invest before the 5th of every month is one is doing on monthly basis and for lumpsum contribution, the amount should be invested before April 5.

The maximum amount that one can invest per year is Rs 1.5 lakh while the minimum amount is as little as Rs 500. As mentioned earlier, one can opt to take loans on PPF from the completion of 3rd year onwards to the 6th year from the date of opening.

The maximum withdrawal amount, in this case, is the lesser among 50 per cent of the account balance at the end of the previous year or 50 per cent of the account balance at the end of the 4th year preceding the year in which withdrawal was opted for.

You can also use online calculators like this one: PPF Calculator - Check PPF Returns, Latest Interest Rate, Maturity & Withdrawal Limits -- to calculate your PPF interest amount. Just enter tenure of the PPF account, deposit/payment frequency, deposit amount and interest amount to get the exact amount.