How to Calculate Interest on Public Provident Fund (PPF) Balance?
The Public Provident Fund or PPF is one of the most popular forms of investment options available for investors in India designed for a long term investors. An investor has to invest in PPF for 15 long years before the account matures.
The Public Provident Fund offers a range of benefits to its subscribers as it falls under exempt-exempt-exempt (EEE) category of Income Tax Act. The principal investment, interest amount and maturity value are all exempt under Section 80C of the Income Tax Act of 1961. Thus, PPF is one of the most favoured forms of investment for long term investment.
Backed by the government of India, this scheme is reviewed once in every quarter and interest rates are fixed accordingly. The interest rate on the investment gets compounded every year.
As per the PPF rules, the interest amount will be calculated monthly but it will get credited at the end of the financial year on March 31st of every year. The interest amount will be payable for a month if the deposit is made before 5th of a particular month. A minimum amount of investment per year is Rs 500 and maximum limit is Rs 1,50,000.
Let's understand in detail about how the interest on the PPF is calculated in case of monthly contributions and if the amount is deposited in lumpsum.
Lumpsum Contribution
If an individual Mr Skanda decides to make a lumpsum investment of Rs 1,50,000 at one go for a particular financial year then the interest on PPF which stands at 7.1% per annum for current fiscal, will be calculated as shown below:
| Date of Deposit | Invested Amount in Rs | Balance on 5th of Every Month in Rs | Balance at the End of Every Month in Rs | Minimum Balance in Rs | Interest Credited in Rs |
| April 3, 2020 | 1,50,000 | 1,50,000 | 1,50,000 | 1,50,000 | 887.50 |
| May 5, 2020 | - | 1,50,000 | 1,50,000 | 1,50,000 | 887.50 |
| June 5, 2020 | - | 1,50,000 | 1,50,000 | 1,50,000 | 887.50 |
| July 5, 2020 | - | 1,50,000 | 1,50,000 | 1,50,000 | 887.50 |
| August 5, 2020 | - | 1,50,000 | 1,50,000 | 1,50,000 | 887.50 |
| September 5, 2020 | - | 1,50,000 | 1,50,000 | 1,50,000 | 887.50 |
| Octomber 5, 2020 | - | 1,50,000 | 1,50,000 | 1,50,000 | 887.50 |
| November 5, 2020 | - | 1,50,000 | 1,50,000 | 1,50,000 | 887.50 |
| December 5, 2020 | - | 1,50,000 | 1,50,000 | 1,50,000 | 887.50 |
| January 5, 2021 | - | 1,50,000 | 1,50,000 | 1,50,000 | 887.50 |
| February 5, 2021 | - | 1,50,000 | 1,50,000 | 1,50,000 | 887.50 |
| March 5, 2021 | - | 1,50,000 | 1,50,000 | 1,50,000 | 887.50 |
| Total Interest | 10,650 |
Mr Skanda will earn an interest of Rs 10,650 for the financial year 2020 - 2021 for depositing a lump sum amount of Rs 1,50,000 in one go. Here the interest amount will be calculated on 5th of every month and thus at the end of the year, the final interest earned on PPF account will stand at Rs 10,650.
Monthly Contribution
Mr Ganesha is investing Rs 10,000 per month. Then the interest on the PPF stands at 7.1% per annum from April 2020 will be calculated as shown below for the financial year April 2020 - March 2021:
| Date of Deposit | Balance as on 5th of Every Month in Rs | Balance at the End of Month in Rs | Minimum Balance in Rs | Interest Credited in Rs | If investment is made before 5th of every month then Interest Amount in Rs |
| April 1, 2020 | 10,000 | 10,000 | 10,000 | 73.95 | 73.95 |
| May 7, 2020 | 20,000 | 20,000 | 20,000 | 73.95 | 147.90 |
| June 8, 2020 | 20,000 | 30,000 | 20,000 | 147.90 | 221.85 |
| July 15, 2020 | 30,000 | 40,000 | 30,000 | 221.85 | 295.80 |
| August 15, 2020 | 50,000 | 50,000 | 50,000 | 295.80 | 369.75 |
| September 3, 2020 | 60,000 | 60,000 | 60,000 | 443.70 | 443.70 |
| October 4, 2020 | 70,000 | 70,000 | 70,000 | 517.65 | 517.65 |
| November 11, 2020 | 80,000 | 80,000 | 80,000 | 517.65 | 591.60 |
| December 10, 2020 | 90,000 | 90,000 | 90,000 | 591.60 | 665.55 |
| January 4, 2021 | 1,00,000 | 1,00,000 | 1,00,000 | 739.50 | 739.50 |
| February 9, 2021 | 1,10,000 | 1,10,000 | 1,10,000 | 739.50 | 813.45 |
| March 14, 2021 | 1,20,000 | 1,20,000 | 1,20,000 | 813.45 | 887.40 |
| Total Interest | 5,176.50 | 5,768.10 |
Here Mr Ganesh will earn an interest of Rs 5,176.50 if monthly deposit towards PPF account done after 5th of every month and Rs 5,768.10 as interest amount annually if a monthly deposit made before 5th of every month.
Conclusion:
It is advised for Public Provident Fund (PPF) subscribers to invest a lump sum amount once during a financial year at one go to earn high-interest amount.
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