Public Provident fund investment in India – Tax benefits and Drawbacks

Public provident fund investment in India is the best secured long term investment option for individuals. Whether you are a salaried employee or self employed, we urge you to take benefits of this scheme. Today, we will show you how to start investing in public provident fund scheme and what are the benefits and drawbacks.

How to invest in public provident fund scheme

To start investing in a Public Provident Fund scheme you are required to open your PPF account either with a designated bank or post office. All most all banks are authorised to open a PPF Account.

If you have a saving account in HDFC or SBI or ICICI or IDBI then you can approach these banks. These banks are providing online PPF account facility where you can keep track of your account online instead of visiting physically to update your passbook.

To open your PPF Account you require following documents;

  • PAN Card copy
  • Government issued Address Proof
  • Two passport size photograph

Visit the branch or post office to fill up the application form and submit it along with your documents to open your PPF Account.

At the time of opening your account, you are required to deposit a minimum fee of 100 rupees and there after you have to deposit a minimum of 500 rupees every year up to a maximum amount of 100000 rupees per year.

Public Provident fund investment in India – Tax benefits and Drawbacks


Benefits or advantages of investing in PPF

Interest rate

Interest rate for public provident fund investment is announced every year in April. At present, PPF account offers 8.8% interest per year which is high compare to other traditional investment plans.

Tax deduction

Principal amount that you invest in your public provident fund scheme every year can be claimed as income tax deduction along with other eligible investments under section 80C of income tax act. Deduction under section 80C can be claimed up to a maximum limit of 100000 rupees.

Not only your contribution to public provident fund scheme, but also contribution to your child’s and spouse’s PPF account is also eligible for IT deduction under section 80C. Please remember, you cannot open PPF account for your child or spouse but you can invest into it after they opened up in their name.

Interest accrued on public provident fund account is also not liable to tax.

Secured long term investment

Public provident fund account is managed by central government even though the accounts are opened up in banks and post offices. For this reason, it’s a secured investment which will give a predefined interest rate every year for the entire duration till maturity.

At the end of 15 years you can also apply for extension of another 5 years. Tax benefits and other benefits will also be extended.

Minimum and maximum ceiling limit

Unlike in fixed deposit or recurring deposit, in public provident fund investments you are not required to contribute any fixed amount every year. A minimum of 500 rupees and up to a maximum of 100000 rupees per PPF account can be deposited.

You are even not required to contribute every month or quarter. The best part is you can deposit it in one transaction or in more than one up to a maximum of 12 transactions in a year.

If you don’t make yearly payments then with a penalty of 50 rupees per year of default, you can continue your PPF account.

Investments can be done in the name of minor

If you have a minor son or daughter then PPF account can be opened in his or her name by having you as a guardian. You can start investing in his or her name to get a lump sum either for marriage or higher education. Like we discussed above, you can also claim income tax deduction on the contribution to your minor son or daughter’s PPF Account.

Drawbacks of Public provident fund investment

Like every investment plans public provident fund investment has also some drawbacks.


Public provident fund investment in India is for a minimum period of 15 years. You can not withdraw the full money if you require it in urgent. Partial withdrawal is only allowed after a period of 5 years.


Loan can be claimed on your invested amount of PPF account. But, the problem is you cannot claim on the whole amount that you have invested in.

Lock in period

Even though lock in period is a good idea which helps in long term investment for 15 years. In many cases we found peoples are not keeping surplus money in hand to use for their urgent requirements and end up in looking for an alternative to withdraw money from PPF account.

Those who can afford to keep their surplus money invested for a period of 15 years should invest in public provident fund scheme.

A non resident Indian cannot open a public provident fund account in India but if they have already opened while being here then they can continue investing in it till maturity.

With all these merits and demerits we feel that PPF scheme is a very good investment option for those who are looking for a long term investment plan. With the tax benefits and high interest rate, public provident fund investment in India is very popular among investors.

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