Public Provident Fund was introduced in 1968 by the National Savings Institute of Ministry of Finance to mobilise small portions of an individual’s savings as an investment and consequently acquire returns from it.
PPF investments also come with income tax benefits which help individuals claim tax exemptions on interest earned from this investment along with building a corpus to fulfil their post-retirement financial requirements.
The current applicable interest rate on PPF is 7.9% per annum (in August 2019), before which, it was at 8% (for October to December 2018). The Ministry of Finance set the PPF interest rate each year, which is compounded annually and paid on March 31st.
Individuals investing in a PPF can withdraw funds from their account when it matures after 15 years from the opening of this account.
One can also choose to make partial PPF withdrawal, after 5 years from account opening under certain special circumstances.
The withdrawal amount is capped at 50% of the accumulated corpus in the fund at the end of the fourth year from the date of account opening.
The following table illustrates the PPF withdrawal rules with respect to their period, grounds and amount.
|Withdrawal||Time||Grounds for withdrawal||Amount|
|After the account matures||After 15 years from account opening||Any||Entire corpus|
|Partial withdrawal of funds||After 5 years from account opening||Any||50% of the total available balance|
|Premature closing of an account||After 5 years from account opening||Educational, medical||Entire amount|
Individuals can choose to extend the tenure of their PPF account for as long as they wish to, in specific blocks of 5 years at a time. If one does not withdraw funds from their account or close it, the tenure for PPF is automatically extended.
The account then continues to generate interest according to the applicable rate of interest, and the balance keeps on accumulating.
If an account is extended by a block of 5 years, individuals can only go ahead with a PPF withdrawal for the available amount in the account before the extension was initiated.
Also, they are allowed only one PPF account withdrawal per year after the extension.
For example, let us assume that Mr. Dutta had opened a PPF account in 1995. It had accumulated Rs. 25 Lakh till the year 2010. Mr. Dutta chose to further extend it by 5 years, up to 2015. He can, therefore, only make a withdrawal of up to Rs. 25 Lakh in 2020. Also, he can only make one withdrawal each year.
Individuals can also choose to extend the tenure of their PPF account with an additional contribution to it. This allows them to add to the corpus of their PPF and accumulate interest on it along with interest earned on their existing amount.
However, this extension can be availed only if the person has submitted Form H for PPF account extension, within a year of the original date of maturity of the account.
Failing to submit Form H will deem the individual ineligible to extend their PPF. As a result, further contributions will not earn any further interest or avail tax benefits under Section 80C of the Income Tax Act, 1961.
Individuals who wish to withdraw funds from their PPF account either partially or in full can do so by submitting a fund withdrawal application via Form C at the respective bank branch with the PPF-linked account.
This PPF withdrawal form is available for download from the website of respective banks.
There are 3 distinct sections of the form, namely –
3. The 3rd section requires individuals to fill up the required details of the banks at which the withdrawn money is to be credited. The money can be credited through a cheque or a demand draft made in favour of the bank.
While applying for the withdrawal, it is also mandatory for individuals to enclose a copy of their PPF’s passbook with the application form.
Unlike other schemes, for which withdrawal applications can be made online, there is no PPF withdrawal online facility. Those wishing to withdraw funds from their PPF, partially or in full, can only do so by submitting their application to their respective banks offline.
The withdrawals from PPF, either partial or in whole are exempt from taxation under Section 80C of the Income Tax Act, 1961.
Public Provident Funds come under Exempt-Exempt-Exempt category of investments. That is, all deposits made under PPF are exempt from taxation. Additionally, the interest applicable and accumulated amount is also free from tax implications at the time of withdrawal.
Individuals can choose to close their PPF account prematurely, instead of withdrawing from it, after completion of 5 financial years, based on the following grounds –
Therefore, those in need of emergency funds can easily withdraw from their PPF account and even choose to terminate it if the needs arise.
However, one should deliberate carefully on their reasons for PPF withdrawal or premature fund closing. PPFs that are extended can accumulate a substantial corpus that can easily tide them over post-retirement.
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