PPF: If you also invest in PPF, then this article is made for you. The Public Provident Fund (PPF) is a popular long-term savings scheme of the Government of India. It currently offers an interest rate of 7.1% per annum, compounded annually. Most importantly, it offers EEE tax benefits: investment is tax-deductible, interest is tax-free, and the maturity proceeds are completely tax-free.
The tenure of a PPF account is 15 years. During this time, your money grows slowly and builds a substantial corpus over the long term. Although you can withdraw some of your funds if needed, there are some rules.
This means that six full financial years must have passed since the account was opened. Partial withdrawals are permitted only once per financial year. These withdrawals can be made for medical emergencies, children’s higher education, or if the account holder becomes an NRI. There is also a limit on the withdrawal amount. Therefore, it is best to withdraw funds only when necessary, as frequent withdrawals reduce the benefits of compounding.
What is the partial withdrawal process?
If you want to make a partial withdrawal from PPF, you must fill out Form C. This form contains the account details, withdrawal amount, and a required declaration, and then sign it. Attach a copy of your PPF passbook and submit it to the bank or post office. After verification, the withdrawal is approved.
Account can be closed prematurely
Premature closure of a PPF account is also permitted. This can be done after five years of account opening. However, a 1% penalty is applied to the interest earned. This means a portion of the interest earned is deducted. Premature closure is permitted only in certain circumstances, such as serious illness of the account holder, spouse, or children, children’s higher education, or the account holder becoming an NRI.
In the case of premature closure, the entire amount can be withdrawn. To do this, fill out Form C and Form SB-7B and submit them to a bank or post office. If you withdraw the funds after the 15-year maturity period, there is no penalty. You can withdraw 100% of the entire amount. You only need to fill out Form C.
Facility to carry forward investment
After maturity, the PPF account can be extended in blocks of five years by submitting Form H. Withdrawal rules depend on whether you continue investing.
If you continue investing during the extension period, you can withdraw a maximum of 60% of the total amount at the beginning of that 5-year block. Furthermore, withdrawals are permitted only once per financial year. If you do not make any new investments during the extension, the 60% limit does not apply. In this case, you can withdraw the entire amount as needed. Interest continues to accrue on the remaining amount.
The amount is completely tax free
Withdrawals from PPF are completely tax-free, whether through partial withdrawals, premature closure, maturity withdrawals, or withdrawals during extensions. These withdrawals are not required to be reported in the Income Tax Return (ITR). PPF is considered a good option for safely building wealth over the long term. Therefore, investments and withdrawals should be made wisely to ensure long-term benefits of compounding.
