Know the liquidity of your PPF Account


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liquidity of your PPF Account.

PPF operates on E-E-E model of taxation whereby investment, accrual and withdrawal is fully exempt from tax. Though best tax saving instruments, people often complaint about Public Provident Fund (PPF) as it lack liquidity due to higher lock in period of 15 years. This is not fully true. PPF account can be close before completion of 15 years period in certain special cases. Such premature closure of account is permissible with 1% reduction in interest rate after completion of 5 years, under following circumstances:
(i) Amount is require for the treatment of serious ailments or life threatening diseases of the account holder, spouse or dependent children or parents on production of supporting documents from competent medical authority.
(ii) Amount is require for higher education of the account holder or the minor account holder, on production of documents and fee bills in confirmation of admission in a recognized institute of higher education in India or abroad:

Apart from above, PPF account also offers certain degree of liquidity by way of Loan or partial withdrawals facility.

Loan facility on PPF A/c:

Rule 10 of the PPF Scheme ensure loan facility to the taxpayers. Loan facility is available from the 3rd financial year. However, loan facility cannot be avail after the completion of 5 years from the end of the year In which account was open. (After completion of 5 years, partial withdrawal facility can be avail). Maximum amount of loan permissible cannot exceed 25% of amount as standing in the account at the ends of the 2nd year immediately preceding the year in which the loan is to be apply for. To simplify, if anyone wants to avail the loan in the FY 2017-18, 25% of the amount (inclusive of interest) as on 31.03.2016 would be permissible. For loan, application has to be in Form D.

Repayment of loan and interest:

Loan amount is to be repaid in one or more monthly installment within a period of 36 months from the first day of the month following the month in which then loan is sanction. After the repayment of principal amount of loan, interest has to be pay in not more than 2 monthly installments. Interest rate for loan is 2% p.a above the interest rate of PPF Account. However, if the loan is not repaid within a period of 36 months then interest on the amount of loan outstanding shall be charge @ 6% above instead of concessional rate of 2% p.a. from the month following the month in which the loan was obtain to the last day of the month in which the loan is finally repaid.

Partial Withdrawals from PPF A/c:

Loan facility is not available after completion of 5 years period. In such case, Rule 9 of the PPF rules allows partial withdrawals from the account without losing any tax benefit. Withdrawal (in Form C) is permitt. At any time after the expiry of 5 years from the end of the year. In which the initial subscription was make. Maximum withdrawals permissible is up to 50% of the amount standing (a). At the end of the fourth year immediately preceding the year of withdrawal or (b). At the end of preceding year, whichever is lower.

This 50% amount would further be reduced by the amount of loan, if any, availed & remained unpaid by the depositor. Note that only one withdrawal is permissible in any one year. In case the PPF account is extend for a further period of 5 years by the depositor. After a completion of 15 years period, then the withdrawals is permissible up to 60% of the balance At his credit at the end of 15 years period.

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