Know PPF account rules- Learn deposit and withdrawal rules of PPF

PPF provides retail investors the one the thing that they seek from all investments- guaranteed returns. The PPF is a debt oriented scheme that does not have any exposure to equities.

July 25, 2019 9:30 IST | India Infoline News Service
The Public Provident Fund or PPF is one of the most popular government backed small savings schemes in India. There is a good reason why it enjoys popularity even after several decades. This is despite the fact that it has a 15-year lock in period. PPF provides retail investors the one the thing that they seek from all investments- guaranteed returns. The PPF is a debt oriented scheme that does not have any exposure to equities.

The interest rate on PPF is set every quarter, based on the yields (returns) on government securities. The current rate of interest on PPF is 8%. PPF enjoys exempt, exempt, exempt i.e. EEE status. This means that the contribution, interest accumulation and withdrawal amounts are exempt from taxes. PPF is also considered an efficient tax savings instrument. Contribution of up to Rs1.5 lakhs in a PPF account qualifies for tax exemption under Section 80 C of the Income Tax Act of India.

Now let us look at some PPF rules in detail:

Deposit rules
The PPF is a 15-year scheme. It can be opened in a post office or a designated bank branch. An individual can have only one PPF account in his or her name. A PPF account can be opened by the parents of minor on his or her behalf. An individual can thus have a PPF account in his or her own name and one in the name of a minor of whom he or she is the guardian.

Grandparents may also be allowed to open a PPF for their grandchildren. This is however allowed, if both the parents of the minor are deceased and the grandparent is the legal guardian of the child.

A maximum of Rs1.5 lakh can be deposited in a PPF account in a financial year. If you make a contribution exceeding Rs1.5 lakhs, the excess deposit does not qualify for exemption under Section 80 C. It is treated as irregular and refunded to your account without any interest. On the other hand, the minimum amount required to keep your PPF account active is Rs500.

You can make a maximum of 12 contributions to your PPF account annually. However, it is prudent to make a deposit before the 5th of each month. This makes you eligible to get the interest for the full month. You can also choose to make your entire contribution in lump sum at the beginning of the financial year.

Withdrawal rules
Now that you are familiar with the deposit rules of PPF, let us look at withdrawal rules of PPF.

PPF rules allow you to withdraw the entire amount after the completion of the lock in of 15-years. You can either choose to close the PPF account after the lock in is over or extend your PPF account by one or more “blocks”. Each block consists of a 5-year period. After extension of the PPF account, you will be allowed to withdraw the amount available in your PPF account at the time of maturity. However, you will be able to make only one withdrawal in a financial year.

You can also extend the PPF account with contributions. However, you will have to submit an application form (Form H) at least a year before the account matures to avail this facility. Once you have extended your account with contributions, PPF rules allow you to withdraw up to 60% of the balance accumulated at the time of extending the account. Here again, you can make one withdrawal per financial year.

Partial withdrawal rules
Although PPF comes with a 15-year lock in, you are eligible to withdraw a certain amount partially in accordance with the following rules:
  • The partial withdrawal facility is available after the completion of 5 years from the date that the PPF account was opened.
  • Only one partial withdrawal is allowed on a PPF account in a financial year.
  • You can withdraw only up to 50% of the balance available in your PPF account after the completion of the fourth year or 50% of the balance account at the end of the financial year preceding the year of partial withdrawal.
  • To make a partial withdrawal, you need to submit Form C. This form should contain details such as account number, amount of money to be withdrawn, etc. 
  • Only after all the details are verified by the bank or post office, the partial withdrawal will be allowed.
Premature closure
PPF rules discourage premature closure of the account. This is because the PPF account is to be treated as retirement savings. However, premature closure of the PPF account is allowed after 5 financial years on the following grounds:
  • Serious or life threatening disease faced by self, spouse or children.
  • To fund higher education of children. In this case, admission details of your child into the said institution has to be submitted during request for premature closure.
Thus, as is evident, PPF  is a long term savings instrument. It can be used as an effective tax saving instrument to augment your retirement savings.

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