THE SARAL GUIDE
PPF Interest Rate Explained: How It Is Set and Calculated
How PPF interest works in plain words: who sets the rate, how it is worked out each month, why the 5th of the month matters, and a year-by-year example.
PPF interest can look confusing. The rate changes from time to time, the interest is worked out every month, and it is added to your account only once a year. This guide explains each part in plain words, with a worked example.
The key points
- The government announces the PPF rate for each quarter. For October to December 2026 it is 7.1% a year, the same as the previous quarter.
- Interest is worked out every month on the lowest balance between the 5th and the last day of the month.
- It is added to your account at the end of each financial year, on 31 March.
- Because interest is added to your balance, it earns interest in the following years. This is called compounding.
How the rate is set
The Ministry of Finance announces the interest rates for all small savings schemes, including PPF, shortly before each quarter begins. The four quarters are January to March, April to June, July to September, and October to December. Each announcement can keep the rate the same or change it. The rate has stayed at 7.1% for many quarters in a row, but nothing guarantees that it will stay there.
When the rate changes, it applies to your existing balance as well, not only to new deposits. That is why a PPF account does not give you a fixed return for 15 years.
How the interest is calculated
- Each month, the scheme looks at the lowest balance in your account between the close of the 5th day and the end of that month.
- Interest for the month is that lowest balance multiplied by the yearly rate, divided by 12.
- These monthly amounts are not paid out. They are added up and credited to your account at the end of the financial year.
- From the next year, that interest is part of your balance and earns interest too.
Why the 5th of the month matters
Money deposited on or before the 5th counts towards that month’s lowest balance, so it earns interest for the whole month. Money deposited after the 5th does not count until the next month.
For example, a deposit of ₹1,50,000 made by 5 April earns about ₹887.50 for April (₹1,50,000 × 7.1% ÷ 12). The same deposit made on 6 April earns nothing for April if it was the only money in the account that month. This is why many people deposit early in the financial year, before the 5th of April.
A year-by-year example
Suppose you open the account and deposit ₹1,50,000 by 5 April, and do the same every year. We assume the rate stays at 7.1% throughout. Here is what the first three years look like:
| Year | Opening balance | Deposit | Interest for the year | Balance at year end |
|---|---|---|---|---|
| 1 | ₹0 | ₹1,50,000 | ₹10,650 | ₹1,60,650 |
| 2 | ₹1,60,650 | ₹1,50,000 | ₹22,056 | ₹3,32,706 |
| 3 | ₹3,32,706 | ₹1,50,000 | ₹34,272 | ₹5,16,978 |
If you carry on in the same way, the balance after 15 yearly deposits is about ₹40,68,209. Of that, ₹22,50,000 is the money you put in and about ₹18,18,209 is interest. If the rate changes in the future, these figures will change too. To try your own numbers and rate, use our PPF calculator.
Is the interest taxable?
Under current rules, PPF interest is exempt from income tax. Read our guide to PPF deposit limits and tax benefits for the details. To understand the basics of the scheme first, see What is PPF?
Sources
- Public Provident Fund Scheme, 2019, paragraph 7 on interest (Ministry of Finance notification, on India Post)
- Outlook Money: small savings rates unchanged for October to December 2026
Last checked: 27 October 2026. The next rate announcement is due around the end of December 2026. Rates and rules can change, so confirm the latest details with your bank or India Post before you act. This guide is general information, not financial advice.