Want to use the money in your PPF account? Know the rules

Public Provident Fund (PPF) account is an excellent tool for tax planning as well as for accumulating funds for retirement. The money in PPF account is not supposed to be used any other purpose except under exceptional circumstances. PPF rules allow you to use the money before its maturity. Let us discuss how one can do it.

Loan facility against PPF balance

You can avail loan from your PPF account. The loan facility becomes available only after completion of one financial year  after end of the year in which the first subscription was made.  So for example for the PPF accounts opened during anytime between 1^st April 2016 and 31^st March 2017 the loan can first be availed during the financial year beginning 1^st April 2018.

The maximum amount of loan which you are entitled to is restricted to 25% of the balance outstanding at the end of second year preceding the year in which loan application is made. So during the financial year 2018-2019, you will be able to avail maximum of 25% of balance including interest standing to credit as on 31^st March 2017 in the PPF account. Loan from PPF account can be taken, by making an application in Form 2 till completion of fifth full financial year from the end of the year in which the account was opened. So for an PPF account opened during financial year 2016-2017 in the above example, you can avail the loan facility for the five financial years i.e. 2018-2019, 2019-2020, 2020-20121, 2021-2022 and 2022-2023 maximum upto  25% of the balances outstanding as on 31^st March of 2017, 2018, 2019, 2020, 2021 respectively.

On the amount of loan taken you not only lose the interest but also have to pay additional  interest @ 1% over and above actual PPF interest rate on amount of loan taken. The amount of loan taken from PPF 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 36 months, you have to pay penal annual interest @ 6% instead of 1% over and above actual PPF interest rate. You have to first pay the amount of the loan and then the interest. The amount of interest remaining unpaid is debited to the PPF account of the subscriber.

Withdrawals from PPF account during its tenure

Though no loan can be taken after completion of five complete financial years from end of the year in which the PPF account was opened you can withdraw from the PPF account, without any obligation to repay it. The application has to be made in form no. 2 . The maximum amount which you are entitled to withdraw is lower of 50% of the balance in the PPF account either at the end of immediate preceding year or in the fourth financial year 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 for.  No withdrawals are permitted in respect of the PPF account where regular contributions are not made till the account is revived and regularised by payment of instalment with penalty as applicable.

Withdrawals after completion of initial tenure of 15 years

Tenure of your PPF account can be extended by submitting form no. 4, for a further block of five years at a time for any number of blocks if you wish to make deposits in the PPF account. However even from the PPF account extended for further five years, you can make withdrawals of upto 60% of the amount outstanding at the time of such extension in one of more instalment during the period of five years. Not more than one withdrawal is permitted during one year. In case of further extension, the amount which you can withdraw in next block of five years would  be 60% of balance at the time of such another extension.

In respect of the PPF account which have matured and the option for further extension has not been made, you can withdraw the accumulated balance at the end of 15 years in one or more than one annual instalments. You will continue to earn interest on such balances from time to time till you fully withdraw the money.

 Premature Closure of the PPF account

Normally PPF account can not be closed before completion of 15 years from the end of the year in which first subscription was made. However you can close your PPF account or that of your minor child after completion of five years from  end of the year in which the account was opened under two circumstances only. Firstly the PPF account can only 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 the funds are needed for higher education of the account holder whether a major or a minor. In case the PPF account is prematurely closed a penalty by way of reduction in the interest credited for each of the year by 1% for every year is levied.

Balwant Jain is a tax and investment expert and can be reached on jainbalwant@gmail.com