The Public Provident Fund (PPF) enjoys EEE (Exempt-Exempt-Exempt) status. The contribution is deductible under Section 80C up to ₹1.5 lakh (old regime only), the interest is exempt under Section 10(11), and the entire maturity corpus — principal plus interest — is tax-free. There is no TDS and no capital gains at any stage. The current rate is 7.1% p.a. (Jul–Sep 2026, unchanged) with a 15-year lock-in.
What EEE Means for PPF
- 1E1 — Contribution80C deduction up to ₹1.5L (old regime)
- 2E2 — InterestExempt yearly under Section 10(11)
- 3E3 — MaturityFull corpus tax-free on withdrawal
Unlike a bank FD (where interest is fully taxable) or NSC (where interest is taxable each year), PPF is one of the very few instruments where all three stages are tax-exempt. Partial withdrawals from the 7th year and the final maturity payout are both entirely tax-free — no TDS, no reporting under any income head.
PPF — Tax Treatment at Each Stage
| Stage | Tax treatment | Section |
|---|---|---|
| Contribution (up to ₹1.5L/yr) | Deductible — old regime only | 80C |
| Annual interest (7.1%) | Exempt — no cap on amount | 10(11) |
| Partial withdrawal (7th yr+) | Tax-free | 10(11) |
| Maturity (15 yrs) | Tax-free — principal + interest | 10(11) |
| TDS | None | — |
Rate 7.1% p.a. for Jul–Sep 2026 (Finance Ministry small-savings notification). 80C is available only if you opt for the OLD tax regime. Verified on incometax.gov.in.
The Budget 2021 rule that makes interest taxable on annual contributions above ₹2.5 lakh applies to EPF/VPF (Section 10(12)), not to PPF. Since the PPF ceiling is ₹1.5 lakh a year — well below ₹2.5 lakh — PPF interest stays fully exempt under Section 10(11) with no monetary cap. See EPF tax rules for the EPF side.
What PPF Actually Saves You
Suppose you contribute the maximum ₹1.5 lakh to PPF in FY 2025-26 and you are in the 30% slab under the old regime. The 80C deduction directly reduces taxable income, and the 7.1% interest is never taxed.
Old regime 80C benefit
Interest exemption (year 1)
Under the new regime the 80C deduction is not available, so the ₹46,800 upfront saving disappears — but the interest and maturity remain fully exempt. Estimate your position with the income-tax calculator and check your slab before deciding.
A 7.1% PPF return is fully tax-free, so its post-tax yield beats a taxable FD paying more on paper. For a 30% taxpayer, a 7.1% tax-free PPF return is equivalent to roughly a 10.1% pre-tax FD. That is why PPF still works even in the new regime where the 80C deduction is gone.
PPF vs Other Tax-Saving Investments
How PPF stacks up against ELSS, NPS, NSC, SGB and a tax-saving FD on tax treatment and lock-in (FY 2025-26).
| Instrument | Contribution | Returns/interest | Maturity | Lock-in |
|---|---|---|---|---|
| PPF | 80C ₹1.5L | Exempt 10(11) | Tax-free | 15 yr |
| ELSS | 80C ₹1.5L | Growth (no payout) | LTCG 12.5% > ₹1.25L | 3 yr |
| NPS | 80C + 80CCD(1B) ₹50k | Market-linked | 60% tax-free, 40% annuity taxable | Till 60 |
| NSC | 80C ₹1.5L | 7.7% taxable (accrued 80C) | Interest taxed at slab | 5 yr |
| SGB | No 80C | 2.5% interest taxable | CG-exempt at maturity* | 8 yr |
| Tax-saving FD | 80C ₹1.5L | Fully taxable, 10% TDS | Interest taxed at slab | 5 yr |
*SGB redemption on maturity is capital-gains exempt for original individual subscribers; secondary-market sale is LTCG at 12.5%. No new SGB tranche has been issued since Feb 2024. ELSS/PPF/NSC/FD 80C share the single ₹1.5 lakh ceiling.
PPF — safe & tax-free
- Sovereign-backed, capital guaranteed
- Interest exempt u/s 10(11), no cap
- Maturity fully tax-free
- Best for low-risk, long-horizon savers
ELSS — growth, shortest lock
- Equity mutual fund, market risk
- 80C ₹1.5L (old regime)
- Gains taxed as equity — 12.5% LTCG above ₹1.25L
- Just 3-year lock-in, highest long-run potential
The RBI has not issued a new Sovereign Gold Bond tranche since February 2024. Existing bonds continue: their 2.5% interest is taxable at slab, but redemption on maturity stays capital-gains exempt for individuals who were the original subscribers. A secondary-market buyer selling after 12 months pays 12.5% LTCG. See our gold tax guide.
PPF Under the New Tax Regime
Under the new tax regime (default from FY 2024-25), Section 80C is not available, so a PPF contribution no longer reduces your taxable income. But the Section 10(11) interest exemption and the tax-free maturity still apply — two of the three E's survive. NPS via 80CCD(2) (employer contribution) is the one deduction that continues to work in the new regime.
✓PPF still makes sense if
- You want guaranteed, risk-free, tax-free compounding
- You are in the old regime and can use the ₹1.5L 80C
- You need a safe long-horizon corpus (retirement, child)
!Reconsider the mix if
- You are on the new regime — 80C gives nothing
- You can lock for only 3 years — ELSS may suit better
- You want equity growth over guaranteed 7.1%
Compare the two regimes fully in our new tax regime guide, and for equity-based tax saving see ELSS vs PPF.
Not sure whether PPF, ELSS or NPS fits your tax and goals? Get a CA to plan it.
Talk to a TaxClue CA →- Section 10(11) & 80C, Income-tax Act: incometax.gov.in
- PPF rate 7.1% / NSC 7.7% (Jul–Sep 2026): Finance Ministry small-savings notification
- Equity CG regime (eff. 23 Jul 2024): 111A 20% STCG, 112A 12.5% LTCG above ₹1.25L
- SGB — no new tranche since Feb 2024; maturity CG-exempt for original holders (RBI)
Disclaimer: This guide is general information based on the law and notifications in force when it was last updated. It is not professional advice for your case — rates, thresholds and due dates change, so check the current position or speak to our CA team before you act on it.