How to Make Withdrawals in a Public Provident Fund Account (PPF): Public Provident Fund (PPF) is a tax-free renowned scheme that is related to small-time savings. The interest earned in a Public Provident Fund is at an 8% tax-free interest rate. In terms of long-term investment, the Public Provident Fund is a crucial yet beneficial tool for individuals. The Features of a Public Provident Fund are as follows;
- An individual has to deposit Rs.500 minimum per year in his/her PPF account.
- A deposit of Rs.1,50,000 is the maximum limit in a PPF account. A deposit of Rs.70,000 was the earliest maximum limit in a PPF account but it changed to Rs.1,00,000 after 30th November 2011 i.e. from 1st December 2011. In August 2014, the new maximum limit for a deposit in a PPF account was set to Rs.1,50,000.
- An individual can make several installments in his/her PPF account in the manifold of Rs.50. There is no specific upper limit on the number of deposits and one can make as many installments as he/she wants but concerning the maximum limit in a PPF account. The rule of maximum limit on the number of installments that was 12 times a year, was removed and ruled out after November 2019 i.e. removed from December 2019.
- The investment duration is set for 15 years. In this case, the effective period adds up to 16 years i.e. the year of account opening and the 15 years addition.
- A financial year basis format is regulated for a PPF i.e. from April 1st to March 31st. The interest on a PPF is credit at the end of the financial year.
- The calculation of PPF is done monthly operating on the lowest balance from the end of the 5th day to the last day of the month, nevertheless the interest into the PPF account is only added back at the end of the financial year.
- There is no guarantee of the interest in the PPF account even though the interest earned is fixed for one financial year in the PPF. The actual benchmark for a PPF is 0.25% higher than the average government bond yield after the 10-year government bond yield.
- According to Section 80C, the limit set for the amount invested by an individual who is eligible for deduction is under Rs.1,50,000. Insurance premiums and children’s school fees are some beneficial expenses under Section 80C as deductions. ELSS, 5-year FD’s, NSC, etc, are some of the approved investment mediums that come under Section 80C as deductions. (Rs.1,50,000 was the revised limit set in August 2014 under section 80C)
- Section 10(11) of the Income Tax Act states that interest earned on the investment is exempted from the tax.
- There is no option to open a joint account with another individual and the account can only be under one individual’s name.
Close PPF Account Before the Maturity Period
The process to close the PPF account earlier. The PPF account, before 1st April 2011, before the completion of 15 years could not be closed unless the individual who opened the account was deceased. Only the nominee appointed by the individual for his/her PPF account who passed away has the authority to close the account by submitting all the required documents. Hence, the amount in the amount can only be withdrawn at the end of the maturity period but unaware of the rule, most of the banks and post offices do not have the details.
Time to Close PPF account
An individual can close his/her PPF account and withdraw the total sum of the amount to date, under certain circumstances. (On 1st April 2016, the new rule came into effect and then modified in December 2016)
Conditions for Premature Closure of PPF Account
- Excluding/After the year on which the account was opened, the PPF account should have completed 5 years.
- In cases of serious illness or higher education of children, the premature closure of PPF accounts is permitted.
- It has to be confirmed by the banks whether the account holder, spouse, children, or parents are suffering from a serious illness or a life-threatening disease, and the documents like medical treatment reports, files, and maybe a verified legal bill are required.
- For higher education for children, the proper required documents should be submitted for premature closure of the PPF account. Documentation like fee bills and confirmation letters of admission by the concerned university either in India or abroad are obligatory.
- An individual needs to present and submit a copy of his/her passport or Income Tax Return in case of change in residency status of the individual. This rule came into effect in 2019.
Penalty for Closing PPF Account
An individual going for premature closure of PPF has to pay the penalty of 1% less interest in all the previous years.
Form for Premature Closure of PPF Account
- New Form: A new form named Form 5 was introduced in December 2019. The sample of the new form is provided as follows;
- Old Form: An individual has to visit his/her concerned bank or post office branch and submit the PPF account closure form there. The sample of the old form, Form SB-7A, is provided as follows;
Alternatives to Closing PPF Account
PPF is considered to be one of the most beneficial schemes for long-term investment as one can gain from a triple tax benefit. A loan from PPF and partial withdrawal from PPF are the two aspects that an individual should consider before the premature closure of his/her PPF account.
Loan Facility in PPF Account
An individual is eligible to borrow from PPF between the 3rd and the 6th financial year of opening the PPF account. Loan facilities of the PPF are as follows;
- One can borrow from PPF between the 3rd and the 6th financial year of opening the PPF account.
- Exactly 25% of the amount can be taken up as a loan in the account of the individual at the end of the 2nd year immediately preceding the year in which the loan was applied. For example, if someone has applied for a loan from PPF in June 2014 at 25%, he/she will be eligible for a loan at 25% on 31st March 2014.
- The loan has to be repaid within 36 months and it can be repaid in total amount or two or more installments.
- An individual has to apply, fill and submit Form D along with the passbook of his/her account to get a loan.
Partial Withdrawals in PPF Account Before The Extension of PPF Account
In case of partial withdrawals before the extension of the PPF account, if the individual has not extended the PPF yet, he/she can make partial withdrawals from his/her PPF account after the expiry of 5 years from the end of the financial year in which the investment was made. So, from this, we can conclude that partial withdrawals from PPF accounts can be made from the 7th year. Conditions for premature withdrawals are as follows;
- If the individual has not extended the PPF yet, he/she can make partial withdrawals from his/her PPF account after the expiry of 5 years from the end of the financial year in which the investment was made.
- There is a limit set on withdrawals made per year which is only once a year.
- An individual is eligible to withdraw up to 50% of his/her account balance at the end of the 4th year immediately preceding the year in which the request was made, or balance on last year, whichever is lower.
- An individual has to apply, fill and submit Form C song with the passbook of his/her account to make withdrawals.
- In case of withdrawal from a minor’s account, a declaration from his/her guardian is required to find out whether it is for the use and benefit of the minor or not.
Partial Withdrawals in PPF Account After The Extension of PPF Account
In case of Partial withdrawals in PPF account after the extension of PPF account, if the individual has extended his/her PPF account (after account completion i.e.15 years) by 5 years, then;
There is a limit set on withdrawals made per year which is only once in a financial year.
After 60% of the credit balance, withdrawals on the total amount are then restricted at the start of the extension block of 5 years.
The individual has to apply, fill and submit Form C song with the passbook of his/her account to make withdrawals.