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The PPF, or public provident fund, is one of the most popular investment options for tax savings and accumulating long-term wealth. PPF, a 15-year investment scheme, can be extended in blocks of five years. It also offers partial withdrawal and loan facility. In terms of income-tax implications, the PPF offers the exempt, exempt and exempt advantage: money invested up to Rs 1.5 lakh in a financial year, interest earned and the maturity proceeds are not taxable in the hands of the investor. The interest rate on the PPF, like other small saving instruments, is revised every quarter. For the current quarter (October-December), investors will earn interest at 8%.
If a PPF subscriber fails to deposit the minimum amount of Rs 500 in a financial year, the account is treated as discontinued. The subscriber cannot obtain loan or make partial withdrawals unless the account is revived.
PPF withdrawal rules
1) A PPF investor is allowed to make one partial withdrawal every year, starting from the seventh year. The withdrawal is capped at 50% of the total balance at the end of the fourth year immediately preceding the year of withdrawal or the year immediately preceding the year of withdrawal, whichever is lower.
2) PPF withdrawals are tax-free. A subscriber can continue with his PPF account after maturity (15 years) without making any further contributions. The balance in the account continues to earn interest till it is closed. During this period, the subscriber can make one withdrawal of any amount in each financial year.
3) If a subscriber want to continue his account after 15 years and also wants to make further deposits, the PPF account can be extended in blocks of five years.
4) During each block period of five years, the account holder can make withdrawals not exceeding 60% of the balance at the commencement of each block.
5) This amount can be withdrawn either in one or more installments in different years, not exceeding one withdrawal a year.
PPF loan facility rules
1) A PPF subscriber is allowed to take a loan from his PPF account from the third financial year. And this loan facility against the PPF account is available only till the end of the sixth financial year.
2) But the loan amount cannot exceed 25% of the balance available in the PPF account at the close of two years immediately preceding the year in which the loan is being applied for.
3) For example, if a PPF account was opened in 2017-18, the first loan can be taken only from 2019-20. A PPF subscriber cannot take a new loan until the old loan has been paid off.
4) A loan can be taken only once in a year even though the loan taken in the year is repaid in the same year.
5) A PPF subscriber needs to submit Form D for a loan request. Interest is charged at 2% over the PPF interest rate. And the loan taken from the PPF account has to be repaid within 36 months.
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