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Investing in a Public Provident Fund (PPF) account offers attractive tax benefits. Contributions up to Rs 1.5 lakh in a year are eligible for tax deductions under Section 80C. Plus, the interest earned on your investment and the corpus are completely tax-free.

PPF is a government-backed scheme in India that is currently offering an annualized return of 7.1 per cent. This scheme has a fixed tenure of 15 years, with the option to extend it in blocks of 5 years. It is open to all individuals, including those who are employed or self-employed. Parents or guardians can open a PPF account for minors. 

With the help of calculation, let’s understand how you can plan to build an Rs 18 lakh/year tax-free income from the Public Provident Fund. We will also explore the period of investment and the estimated interest amount. 

Before we proceed further, it is important to know what a PPF is. Public Provident Fund is a government-backed savings scheme in India designed to encourage consistent savings for the golden years. The PPF scheme has a fixed tenure of 15 years, with the option to extend it in blocks of 5 years. 

The benefits of PPF are as follows:

While the maturity period of a Public Provident Fund (PPF) account is 15 years, subscribers or account holders can make partial withdrawals before maturity. Here's what you need to know:

You can make one withdrawal per financial year after completing 5 years from the date of account opening.

Note that the 5-year lock-in period includes the year of account opening.

For example, if you opened your PPF account in 2024-25, you can make your first withdrawal in 2030-31 or later.

When making a withdrawal from your Public Provident Fund (PPF) account, there are specific limits to keep in mind:

You can withdraw up to 50 per cent of the balance at the end of the 4th preceding year or the end of the preceding year, whichever is lower.

For example, if you are making a withdrawal in the financial year 2024-25, you can withdraw up to 50 per cent of the balance as of March 31, 2023, or March 31, 2024, whichever is lower.

After completing the initial 15-year maturity period, you have the flexibility to manage your Public Provident Fund (PPF) account as follows:

You can choose to continue your account with or without making further deposits.

You can also extend it in blocks of 5 years.

Also Read: Rs 11,000 monthly investment in Post Office Public Provident Fund, how much will you earn in 15, 20 & 25 years?

To generate over Rs 18 lakh/year from PPF, one has to begin with a Rs 1.50 lakh investment every year and continue it till the maturity period of 15 years. Later, you can extend the account for unlimited blocks of 5 years each for maximum return.

The investment amount in 15 years will be Rs 22,50,000, the estimated interest will be Rs 18,18,209, and the estimated maturity will be Rs 40,68,209. The investor can take an extension of 5 years and keep investing Rs 1.50 lakh a year in the same way as before.

In 20 years, the total investment will be Rs 30,00,000, the estimated interest will be Rs 36,58,288, and the estimated corpus will be Rs 66,58,288. At this stage, the investor can take another extension of 5 years and continue the practice of investing Rs 1.50 lakh a year. 

In 25 years, the total investment will be Rs 37,50,000, the estimated interest will be Rs 65,58,015, and the estimated corpus will be Rs 1,03,08,015.

In 30 years, the total investment will be Rs 45,00,000, the estimated interest amount will be Rs 1,09,50,911, and the estimated corpus will be Rs 1,54,50,911. 

In 35 years, the total investment will be Rs 52,50,000, the estimated interest amount will be Rs 1,74,47,857, and the estimated maturity amount will be Rs 2,26,97,857.

From here onwards, account holders can start withdrawing interest on the entire corpus. During extensions, the account holder is allowed to withdraw the interest amount once a year.  

At a 7.1 per cent interest rate, the interest in a year will be Rs 18,91,488. 

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