You have been saving money in your Public Provident Fund (PPF) account for a long time, and it’s finally time to take out some of it. But there are a lot of withdrawal rules that you need to know before you can do that.
Don’t worry; we’ve got your back! This article will discuss every aspect you need to consider before proceeding with a PPF withdrawal in India.
Overview of the PPF Withdrawal Rules
Public Provident Fund (PPF) is a popular investment scheme in India that allows individuals to save money for their future while availing of tax benefits. It is a long-term savings scheme with a maturity period of 15 years, and investors can contribute an amount of up to 1.5 lakh INR every year.
The PPF withdrawal rules are designed for convenience and flexibility. You can withdraw up to 50 per cent of the accumulated balance at the end of the fourth year, and the following withdrawal opportunities are available subsequently:
- After completion of 5th year
- After completion of 7th year
- On completion of each year after 7th year
- During the 15th financial year, when your account matures
The amount you can withdraw at one time cannot exceed 1/3rd of your total PPF balance at the end of 2nd preceding financial year. Additionally, premature closure of a PPF account is allowed only after the completion of 5 years or in cases where the account holder needs funds for medical treatment or other emergency needs.
When Can You Withdraw as per the PPF Withdrawal Rules?
Public Provident Fund (PPF) is a long-term saving scheme offered by the Indian government. It provides a safe retirement corpus with tax exemption and has a loyalty bonus for investments. Its popularity has grown over the years because of the safe and guaranteed returns it offers.
But things get a bit tricky when it comes to PPF withdrawal rules. You can withdraw from your PPF account only after your entire tenure of 15 years or at maturity. In case you need to access those funds earlier, there are certain conditions where you may be allowed to withdraw before maturity.
For instance, once you’ve completed 7 years in PPF, you may be able to withdraw up to 50% of the balance accumulated up till then, but only once in the entire tenure. Additionally, after 12 years, you can take loans from your PPF account of up to 25% of the balance at any point (not just once). Any previous loans taken must be repaid before taking further loans or partial withdrawal facilities. In either case, an administrative fee is applicable for such early withdrawals.
Partial PPF Withdrawal Rules
If investing in a PPF account, you should know the partial withdrawal rules since life is full of surprises, and things don’t always go as planned.
According to PPF withdrawal rules in India, you become eligible to make partial withdrawals from your account six years after opening the account. However, the number of partial withdrawals you make each year is limited to one. Here are other vital points that you need to keep in mind about partial withdrawals:
- The minimum amount for a partial withdrawal must be Rs 500, with no maximum limit.
- You can withdraw up to 50% of the balance that stood at the end of the fourth year preceding the year of withdrawal or at the end of the preceding year – whichever is lower.
- Partial withdrawals are allowed only during the extension period. They won’t be permitted once your account matures, even if it is extended beyond 15 years.
- Partial withdrawals will not reduce your loan eligibility from a PPF account either, but only if it’s within 30% of the balance available at the beginning of the financial year when calculated individually or as mentioned above over a consecutive block of three years.
Tax Benefits of Investing in Public Provident Fund
Tax benefits are one of the significant attractions of investing in a public provident fund. If you want to maximize your investment, understanding the tax benefits associated with PPF is essential. The following are the tax benefits of investing in a PPF:
Tax Deductible Contributions
Up to Rs 1.5 Lakh per annum is allowed as a deduction from your income for investing in PPF. The amount includes all contributions you and/or anyone else made on your behalf. However, only one individual can claim this deduction each financial year. If you and your spouse invest in their personal PPF account, one of you will have to forgo the deduction.
Tax-Free Interest Earnings
The interest earned on your PPF investment is completely tax-free, which means that all the interest you earn on your investments will be added to your bank balance instead of being deducted for taxes!
Tax-Free Maturity Amounts
The total amount accumulated at maturity (i.e., principal + interest) is also completely tax-free and exempt from taxation under Section 10(11) of the Income Tax Act, 1961. So when it comes time to withdraw your funds or close the account after 15 years, you won’t have to worry about paying any taxes!
Loan Facility from the Public Provident Fund Account
The PPF has an excellent loan facility, too! After paying all due instalments, you can take a loan from your PPF account anytime between the third and sixth year of opening your account.
You have to apply for the loan and get it approved. Still, you can use it to cover emergency expenses like medical bills, or tuition fees. The amount you can borrow is dependent on the amount you’ve paid in your account. The maximum loan allowed is 25 per cent of the lower balances at the end of either the second or third year preceding the year the loan is applied for. You must repay this loan within 36 months in equal instalments.
It’s important to note that if you don’t repay these loans on time, your account will be frozen until it’s repaid. Any interest due will not be credited to your account. So, make sure to keep track of when these payments are due!
Tax Implications according to the PPF Withdrawal Rules
In case you have to withdraw funds from your Public Provident Fund (PPF) account, you should know that there will be some tax implications:
Withdrawing at Maturity
The great news is that your PPF contribution is eligible for tax deductions under Section 80C. If you withdraw your amount at the maturity of 15 years, it will be exempt from federal taxes when the amount is withdrawn.
You can also partially withdraw from your PPF account up to a specific limit. Any money removed from the account post-completion of 5 financial years and before completion of 15 years is taxable under Income Tax Act 1961 in the year it was withdrawn.
Premature Closure of Account
In exceptional cases where premature closure of a PPF account is allowed, any withdrawal becomes taxable unless this condition is fulfilled – withdrawals made before completing 5 financial years would only qualify as tax-free if the amount is used for higher education or specialized medical treatment.
In conclusion, with a PPF fund, you get many advantages regarding returns, security, and tax benefits. The PPF withdrawal rules are straightforward, and the investment can be held in perpetuity if you wish. The rules offer flexibility and the ability to make partial withdrawals if needed. It is a great choice for those who want to save for retirement and provide a comfortable financial future for themselves and their families.
Q1. Can we withdraw PPF any time?
A PPF account holder is eligible to withdraw funds only if the account has existed for at least 5 years.
Q2. How much can we withdraw from PPF after 7 years?
A PPF account holder can withdraw up to 50% of the amount after 7 years, beginning with the end of the year when the first contribution was made.
Q3. What happens if you stop investing in PPF?
It is not possible to discontinue Public Provident Fund account. You must deposit a minimum of Rs.500 in a financial year. If you fail to do so, a penalty of Rs.50 will be applied each year along with arrears of Rs.500 for each year missed.