2 Replies to “can anybody tell how the interests will be calculated for the PPF account?”

  1. An investment in PPF will earn you 8% per annum. But because of the tax rebate, your actual return of 8% works out to be higher. Moreover, the returns are compounded. That means you not only earn interest in the money you put in, but you earn interest on the interest earned, too.

    Let’s say you put in Rs 60,000 in the first year. You will earn Rs 4,800 as interest rate. The next year, your interest rate will be computed on Rs 64,800 (Rs 60,000 + Rs 4,800) as well as whatever fresh amounts you deposit.

    The interest earned is totally exempt from tax under Section 10 (11) of the Income Tax Act. The 8% per annum that you get will not be taxed.

    You can invest up to a maximum of Rs 60,000 per annum in the PPF. Some categories of investors can go up to Rs 70,000. The minimum that you must put in every year is Rs 500.

    Besides having such a huge leeway in terms of the amount of money to be invested, you can invest the money in up to 12 installments. You don’t have to put it all in one go. Each installment can be whatever amount you want it to be. They need not all be identical.

    The interest rate keeps changing It was initially 12% per annum, dropped to 11%, then 9.5% and is now 8%. This rate of interest is fixed by the government and there is nothing you can do about it.

    There is a Lengthy lock-in period – Fifteen years to be exact. But, in actuality, it works out to 16 years since the last contribution is made in the 16th financial year.

    Interest is calculated on the lowest balance between the fifth and the last day of the month of March.

    Let’s say you have Rs 100,000 in your PPF account and on the 10th, you deposit an additional Rs 10,000. Your interest will be calculated on Rs 100,000 (not Rs 110,000).

  2. Hi Nagendra,

    Interest for PPF is calculated @ 8% p.a. (cumulative). Investments made during the year are also eligible for interest for the remainder of the year.

    It is advisable to invest earlier in the year as the earlier you invest, the more interest is accrued.

    Investing monthly or lumpsum depends on your cash flow. If you can, then invest in lumpsum as early in the year as possible as you will get interest on that amount for the remaining months of the year.

    Also keep in mind, make this investment between the 1st and 4th of the month as the interest for each month is calculated on the lowest balance during the month between the 5th and the 31st.

    Eg. If on 31/3/07 you invested Rs.10,000 for the first time and on 1st July 07 you invested a lumpsum of Rs. 12,000.

    Your Interest for the year will be :

    (8% of 10,000) + (8% of 12,000 for 9 months) = Rs. 1520

    But, if you had invested for ’07-’08 only at the end of the financial year, say in March 2008, your interest would only be (8% of 10,000) = Rs. 800
    You would have lost the additional Rs. 720 interest.

    I hope this answers your question. 🙂

    For any further questions on PPF or any other investment planning, please feel free to email me.


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