Public Provident Fund (PPF) account is an excellent tool for tax planning as well as for accumulating funds for retirement. PPF rules allow you to use the money before maturity. Let us see how it can be done.
Loan against PPF
You can avail loan from your PPF account after completion of one financial year, after the end of the year during which the first subscription was made. For example, for PPF accounts opened between April 1, 2016 and March 31, 2017 the loan can first be availed during the financial year beginning April 1, 2018.
The maximum amount of loan is restricted to 25% of the balance outstanding at the end of the second year, that is, the year preceding the year in which loan application is made. So during FY 18-19, you can avail loan of maximum of 25% of the balance as on March 31, 2017.
Loan from PPF account can be taken by making an application in Form D. The loan facility is available till completion of five full financial years, from the end of the year in which the account was opened. So, for PPF account opened during FY 16-17 in the above example, you can avail the loan facility for five financial years, that is, starting from FY 18-19 till FY 22-23.
You will lose the interest on the amount of loan taken. You will also have to pay an annual interest of 2% on the amount of loan taken. The loan has to be repaid within 36 months from the end of the month in which the loan is taken. In case you fail to repay the loan within this period, you have to pay penalty of 6% per annum on the amount. You have to first pay the loan amount and then the interest. Unpaid interest is debited from the PPF account.
Withdrawal before maturity
You cannot take a loan after five complete financial years, from end of the year in which the PPF account was opened. But you can withdraw from the PPF account without any obligation to repay it. The application for withdrawal has to be made in Form C.
You can withdraw a maximum of 50% of the balance in the PPF account, at the end of the year immediately preceding the financial year in which the application for withdrawal is made. In case any loan is outstanding, the same shall be deduced from the amount of withdrawal requested. No withdrawals are permitted in respect of accounts where regular contributions are not made.
Withdrawal after 15 years
Tenure of your PPF account can be extended by submitting Form H, for a block of five years, at a time. It can be extended for any number of blocks. From the PPF account extended, you can make withdrawals up to 60% of the amount outstanding at the time of extension, in one or more installments during the period of extension. In respect of PPF accounts that have matured and not extended, you can withdraw the accumulated balance at the end of 15 years in one or more than one annual installments. You will continue to earn interest on such balances till you fully withdraw the money.
Normally PPF account cannot be closed before completion of 15 years from the end of the year in which first subscription was made. However, closure after completion of five years, is permitted under two conditions. Firstly, the PPF account can be closed prematurely if funds are needed for medical treatment for a serious life threatening disease of the subscriber, his spouse, his dependent children or parents. Secondly it can be closed if funds are needed for higher education of the account holder. In case the PPF account is prematurely closed, a penalty by way of reduction in the interest credited for each year, by 1% is levied.