PPF withdrawal rules and process explained
The Public Provident Fund (PPF) scheme has strict rules about withdrawal. Normally, you can withdraw the money in your PPF account upon maturity. But in some cases, you may be able to make partial withdrawals. You could even close the account prematurely. This article explains some of the PPF withdrawal rules with examples.
PPF Scheme Details
First, look at the PPF scheme details that every PPF accountholder should be aware of:
· PPF tax benefits: As a PPF account-holder you can avail tax benefits under Section 80C of the Income Tax Act. Both principal and interest are exempt from tax up to a limit of Rs 1.5 lakh.
· PPF lock-in period: The PPF lock-in period is six years. During this time, you may not withdraw the money invested in your PPF account.
· PPF maturity period: The PPF maturity period is 15 years from the date of creation.
PPF withdrawal Rules
You can withdraw money from your PPF account after the lock-in period. That means withdrawals are possible from the start of the seventh financial year since the date of creation.
Mr Kumar invested in a PPF account on 21 February 2012. So, his account opening was in the financial year 2011–2012.
- Year 1: April 2011–March 2012 (Creation of account on 21 February 2012)
- Year 2: April 2012–March 2013
- Year 3: April 2013–March 2014
- Year 4: April 2014–March 2015
- Year 5: April 2015–March 2016
- Year 6: April 2016–March 2017
- Year 7: April 2017–March 2018 (Mr Kumar can make a partial withdrawal from this year onwards.)
From the seventh year onwards, Mr Kumar can make partial withdrawals once a year. But the PPF withdrawal rules also apply to the amount withdrawn. The amount must not exceed:
a) 50% of the fund balance at the end of the fourth year, or
b) 50% of the fund balance at the end of the preceding year, whichever is lower.
Now, suppose Mr Kumar withdraws Rs 50,000 from his PPF account during the seventh year. He can make no further withdrawals until the eighth year.
Making a withdrawal naturally reduces the fund value in the PPF account. But you cannot repay that amount back into your PPF account. So, imagine Mr Kumar gets a bonus of Rs 1 lakh. He may have the extra Rs 50,000 to spare. But he cannot use it to make up for the premature withdrawal from his PPF account.
New PPF withdrawal Rules: 2016
Earlier, premature closure of a PPF account was permissible only on the death of the accountholder. But the Ministry of Finance announced a change in June 2016. Now, premature closure of a PPF account is possible after five financial years.
But such a premature closure is subject to certain restrictions. It may be allowed for reasons like medical expenditure or higher education. For example, Mrs Mehta needs the money to fund chemotherapy for her ailing husband. She will have to present medical documents supporting the claim.
Mr Biswas wishes to close the account to meet his daughter’s higher education needs. He needs to show other supporting documents. These could include bills for tuition fees paid to a recognised educational institution in India or abroad.
In both cases, premature withdrawal will attract a 1% penalty charge.