PPF is a famous tax saving investment that enjoys EEE tax exempt status in respect of contribution made, interest earned and on maturity proceeds. And now as the fresh financial year has just begun and you may be tempted to lock current high rates after a sudden rate cut move which was later reversed. Here we will tell you why April 1-4 hold significance for PPF:
Say your PPF investment as at the end of March 31, 2021 was Rs. 10 lakh and you invest the maximum allowed Rs. 1.5 lakh into it again as a fresh contribution on April 3 then PPF balance as on April 3 shall be Rs. 11.5 lakh. And accordingly as per the rule, the minimum balance between April 5 and April 30 shall be Rs. 11.5 lakh. So for the April month the current 7.1% interest rate shall be payable on this amount of Rs. 11.5 lakh i.e Rs. 6804.
And now considering that you make contribution after April 5 say on April 7 then even though the balance on April 7 shall be Rs. 11.5 lakh, the minimum balance between 5th April and 30th April shall be Rs. 10 lakh, so interest earning in such a case shall be on Rs. 10 lakh even though you made a contribution in the first week of April and it will amount to Rs. 5917. So, here you lost out an interest of almost Rs. 900 just by delaying the contribution into the instrument by few days time.
Here note that PPF interest is calculated monthly but is credited only once at the financial year ending. Hence there is no monthly compounding of interest for PPF. Furthermore after you have exhausted your annual contribution to PPF at the start of the FY only, the minimum balance per month would remain the same.
But in a case if your pocket does not allows contribution to PPF all at one go that is even fine. But then your interest earnings shall be slightly lower.