The Public Provident Fund (PPF) account is a very good product for tax planning as well as retirement planning. Since this is supposed to be your retirement money, it is not advised to be withdrawn before retirement. However, PPF rules have some provisions for you to use this money before its maturity. Let us see how this can be done.
Loan against balance in PPF account
You can avail the loan facility only after your PPF account has completed one full financial year from the end of the year of its opening. Let us understand this with an example. So in case you had opened your PPF accounts anytime between April 1, 2016 and March 31, 2017, you will be able to avail the loan from the financial year beginning April 1, 2018 only. The amount of loan which you can take against PPF account is restricted to 25 per cent of the accumulated balance at the end of the financial year, prior to the year in which you made the loan application. So during the current financial year 2018-2019, you will be able to avail loan upto 25 per cent of accumulated balance as on March 31, 2017.
Loan from PPF account can be taken till completion of fifth full financial year from the end of the year of opening of the account. You have to pay an annual interest @ 2 per cent on the loan amount. The loan has to be repaid within 36 months failing which you have to pay penal annual interest @ 6 per cent instead of 2 per cent on the amount of loan remaining unpaid. Loan is to be repaid first and then the interest. The interest remaining unpaid is debited to the PPF account of the subscriber.
After five years the loan facility ceases to be available, but you can withdraw, without any obligation to repay, from the PPF account. The amount which can be withdrawn is restricted to higher of 50 per cent of the accumulated balance in the account at the end of immediate preceding financial year or the fourth financial year preceding the year of withdrawal. In case any loan is unpaid it is deducted from the amount of withdrawal amount.
You can make withdrawal only if regular contributions are made in the account for all the years. In case of an irregular account, no withdrawals can be made till the account is regularised by payment of overdue instalments.
Withdrawals after maturity
The tenure of a PPF account can be extended, for a further block of five years at a time for any number of blocks if you wish to make deposits in the PPF account by submitting Form H. From the PPF account so extended, you can still make withdrawals of upto 60 per cent of the accumulated balance at the time of such extension in one or more instalments during the period of five years. Not more than one withdrawal can be made during one financial year. In case the account is again extended you can again withdraw upto 60 per cent of the balance at the time of such another extension during the next five years.
For the matured PPF account for which application for further extension has not been made, you can withdraw the entire accumulated balance at the end of 15 years in one or more annual instalments. You will continue to earn interest on such balances from time to time till the entire balance is withdrawn.
Premature closure facility for PPF account
The PPF account cannot be closed before completion of 15 years subject to only a few exceptions. You can close your PPF account or that of your minor child after completion of five years under two circumstances only. Firstly, the premature closure is allowed if the amount is needed for medical treatment for a critical and life threatening disease of the either the subscriber himself or his spouse, his dependent children or parents. The other situation when you can prematurely close it is when funds are required for funding higher education of the account holder whether a major of a minor. Premature closure of the PPF account comes with a cost. For premature closure a penalty in the form of reversal of interest credited for each of the year by 1 per cent for each of the year is levied.
Balwant Jain is a tax and investment expert and can be reached at email@example.com