PPF interest rate: current rate and how it is set

Current PPF interest rate in post office and banks

For October to December the government has kept the rate at 7.1% a year. Post offices and authorised banks have no say in it, so what post offices pay on PPF is exactly what a bank pays. If someone quotes a higher PPF rate at a counter, ask for the notification.

Unlike a fixed deposit or a National Savings Certificate, PPF does not lock the rate at the time of opening. When the rate changes, your existing balance starts earning the new rate from the first day of the new quarter. That is why a long PPF account usually ends up with a mix of different rates across its life.

How the government fixes the rate

Small savings rates were once changed rarely, by separate notifications. A government committee later suggested linking them to the market: the rate for each scheme should follow the average yield on government securities with a matching maturity in the months before, plus a small margin. Since the quarterly system began, the Department of Economic Affairs publishes the coming quarter's rates shortly before it starts, and the Press Information Bureau publishes the list.

The formula is only a guide. The government can hold a rate steady even when bond yields move, and it often has. That is why the PPF rate has sometimes stayed the same for many quarters in a row.

How interest on a PPF account is calculated

Each month, the office looks at your balance from the end of day 5 to the month's last day and takes the smallest figure. That smallest figure earns one month of interest, meaning a twelfth of the annual rate. On 31 March the twelve monthly figures are totalled and posted to the account. From then on that interest also earns interest.

PPF interest rate history in plain words

The scheme is old, and its rate has seen long phases. For many years the PPF rate was in double digits, then it was cut to single digits and held flat for a long stretch. After rates were linked to bond yields, the government first reset them once a year and then moved to quarterly resets. Since then the rate has moved in small steps and has been left unchanged for long runs of quarters.

If you need an exact old rate for a tax or audit question, your accounts office can look up the rate for that period, and the official record sits with the National Savings Institute. Do not use an old rate to project the future; nobody can say what a later quarter will bring.

Is PPF interest taxable

No. PPF interest falls under Section 10(11) of the Income Tax Act, so there is no TDS and nothing to add to taxable income. The same applies to the maturity payout. The deposit side is covered by 80C for old regime filers, capped at 1.5 lakh a year. Show the interest in the exempt income part of your return so your records stay clean.

When the rate is cut by 1 percent, and loan interest

Two situations change what you actually earn:

• Premature closure: allowed once the account has completed five full financial years after the opening year, for serious illness, higher education or change of residency. All past interest is then reworked one percentage point lower.
• Loan: in years 3 to 6, borrowing up to 25 percent of a past balance costs 1 percent a year. The borrowed sum stops earning PPF interest while it is out, so the true cost is that lost interest plus the 1 percent.

Details of both are on the withdrawal rules page.

PPF rate next to other small savings rates

A taxable rate and a tax free rate are not directly comparable; the after tax figure depends on your slab. Sister pages cover the Sukanya Samriddhi interest rate and the NSC interest rate.