An individual has the option to make either monthly or yearly contributions to a PPF account, as there is no fixed due date for deposits within a financial year. However, the timing of contributions can influence the interest earned.
Depositing a lump-sum amount in the scheme between 1 April and 5 April of a financial year is considered beneficial, as PPF interest is calculated based on the lowest balance between the 5th and the end of each month. If investing the full annual amount at the start of the financial year is not possible, making monthly contributions before the 5th of each month can help maximise interest earnings.
Penalty for missing a deposit and what happens next
Missing a PPF contribution can affect the account’s active status and requires a penalty payment of ₹50 for each defaulted year along with the minimum required contribution for those years. For example, a 2-year lapse requires ₹100 penalty, as well as ₹1,000 minimum deposits, totaling ₹1100. Once this payment is made, the account can be restored to active status.
To reactivate a discontinued PPF account, you will have to submit an application to your bank or post office where your account is maintained.
Until the payment is made, the account remains inactive, however, it continues to earn interest on existing balance. But, you are not allowed to make fresh contributions until it is revived. This can interrupt the benefit of consistent compounding over time.
If the account is not reactivated, the account still matures after 15 years, but access is limited unless revived after maturity. It may also limit flexibility for partial withdrawals or loan facilities, according to PaisaBazaar.
Benefits of PPF
The PPF scheme, which is designed as a long-term savings instrument, remains one of India’s most widely preferred investment options, largely due to its tax benefits, stable interest earnings and ease of access.
It allows investors to build a corpus while earning assured returns on their contributions. Backed by the Government of India, PPF is often considered a safe and reliable avenue for conservative or risk-averse investors.
At present, the deposit rate is 7.10% per annum, which is reviewed by the government every quarter. The interest rate has remained unchanged for over 6 years, since 1 April 2020. The scheme has a 15-year lock-in period, but a person can keep extending it in blocks of 5 years as many times as they want.
PPF also falls under the EEE (Exempt-Exempt-Exempt) category. This means that contributions made to a PPF account are eligible for tax deduction under Section 80C of the Income Tax Act, up to ₹1.5 lakh in a financial year. Additionally, the interest earned on investments is completely tax-free, and the maturity proceeds withdrawn from a PPF account are also entirely exempt from tax.
Though the lock-in period of the scheme is 15 years, partial withdrawals are permitted after 5 years, allowing investors to withdraw up to 50% of the balance, calculated based on either the end of the 4th year or the year immediately preceding the withdrawal. Apart from that, premature closure of a PPF account is allowed under specific conditions, such as serious illness or higher education.
