If you have a Public Provident Fund (PPF) scheme account, then it is important to know that one earns interest for a full financial year only on the amount deposited in the account by April 5. Therefore, to maximise returns from PPF one should ideally deposit the maximum allowed per financial year i.e., Rs 1.5 lakh between April 1 to 5 of the financial year. Even if one is unable to deposit the full amount of Rs 1.5 lakh during this period one should try to deposit the maximum one can subject to this limit.
This is because according to scheme rules, the interest on PPF deposit is calculated on the minimum balance between the fifth and the end of every month. Thus, if the lumpsum investment is made on or before April 5 (but on or after April 1), then this deposit will be taken into account to calculate interest due for that month i.e., for April and the rest of the financial year.
But in case you have forgotten to make the lumpsum deposit before April 5, then you must do it as soon as possible – at least before the 5th of the next month i.e., May. This is because once the deposit is made, then you will lose interest only for the month of April. The deposit made will fetch interest for the balance months of the financial year. Amounts deposited in a PPF account on or before the 5th in later months (after April) will earn interest only from the deposit month onwards i.e., they will not earn interest for full 12 months of the financial year.
As per the PPF scheme rules, the interest on PPF deposit is calculated every month on the balance available in the PPF account but is credited at the end of the financial year.
Here is an example to understand how much interest amount you will lose if you don’t deposit the maximum amount allowed as lumpsum between April 1 to 5 and instead deposit it in the last month of the financial year i.e. in March.
Suppose you invest Rs 1.5 lakh in your PPF account on April 20. You will earn the current PPF interest of 7.1% throughout the year. As you have missed the date of April 5, the deposit made will fetch the interest for 11 months. In this case, interest earned will be Rs 9,762.50 for the FY 2022-23. For the month of April, you will not earn interest as you have missed the date of April 5.
Now, suppose you make this investment on March 1, 2023. In such a scenario, the deposit of Rs 1.5 lakh made for FY 2022-23 will earn interest for only one month, which will be Rs 887.50.
Had the investment been made on or before April 5, 2022, the interest earned for the full year would be Rs 10,650.
Thus, by missing the April 5 date, you lose interest of Rs 887.50, provided you make the deposit in the month of April itself – latest by May 5. But if you made the deposit at the end of FY 2022-23, i.e., on or before March 5, you lose interest for 11 months and earn interest of Rs 887.50 only.
It is important to note that the interest of Rs 887.50 may not seem much but remember PPF account comes with a lock-in period of 15 years. Due to compounding over the long-term, you may end up losing much more money.
Assuming the interest rate of 7.1% throughout the lock-in period of 15 years, an individual depositing Rs 1.5 lakh every year in the PPF account on April 1 every year will earn Rs 40,68,208. On the other hand, individual making deposit in PPF account on March 31 every year will earn Rs 37,98,515.
Thus, by not depositing at the start of the year, an individual loses interest of Rs 2,69,693.
Maximum investment amount in PPF scheme
As per current income tax laws, an individual can invest a maximum of Rs 1.5 lakh in PPF in a single financial year. The investment can be made either as a single lump sum or via monthly contributions. If you are investing monthly, then ensure that deposits are made on or before 5th of every month so that interest of that month is being earned.
