Public Provident Fund (PPF) – New Withdrawal Rules in 2016
PPF is one of the best retirement saving schemes which provides highest tax free interest rates for 15 years. One of the biggest drawbacks was about withdrawal of money from this scheme before maturity. Last week, Ministry of finance announced some changes to the PPF Withdrawal from 2016 onwards which would benefit many investors. What are the New PPF Withdrawal rules introduced from 2016 onwards? How one can withdraw PPF amount before maturity? What are the guidelines for partial withdrawl of money from PPF?
Also Read: Ways to transfer money from bank account to your PPF account online?
What is PPF Account?
If you are already familiar of PPF, you can skip this section.
The public provident fund (PPF) scheme was introduced in the year 1968 by the ministry of finance. It is an important tax saving tool for the citizens of India as it attracts many tax benefits. It is an account that can be opened in any authorized bank or authorized bank branch. The interest earned on the deposits of PPF account is tax free and also the amount contributed towards the PPF account can be claimed as deduction.
Features of the PPF account
The key features of the PPF account are listed below.
- The interest rates are governed by the central government and declared on the annual basis. The interest is credited annually in the account.
- The initial investment with which the account can be started is Rs. 100.
- The account is opened for tenure of 15 years. After maturity, the account continuance is allowed for 5 years with or without deposition of fund.
- The amount deposited in the account can range between Rs. 500 to 1,50,000 per annum. The amount can be revised as per the government rules.
- It is compulsory to invest a minimum of amount in the account in order to keep it active. Failure may result in the inactivation of the account.
- The complete withdrawal of funds can be made only at maturity. However, partial premature withdrawals can be made subject to certain conditions.
How to get maximum interest on PPF?
The interest rate for the financial year 2016-2017 is 8.1% per annum. In the year 2015-2016, it was 8.7% p.a. The interest is compounded annually and credited at the end of every financial year. It is calculated as per the rates announced by the government and it keeps on fluctuating. The amount deposited before 5th of every month is counted for interest for that particular month. For e.g. if your account shows a balance of 1,20,000 and a deposit of Rs. 5,000 is made on 7th of August, interest will be calculated on 1,20,000 for the month of August and from September, it would be 1,25,000. So, in order to maximize your earnings, deposits should ideally be made from 1st to 5th of any month. You can refer my article about getting maximum interest in PPF.
New PPF withdrawal rules from 2016 onwards
- The finance ministry has announced that the PPF account holders will be able to make a premature closure of their account provided that it is 5 years old. But, the condition is that the amount is going to be used for a specific reason. The amount can be used for the treatment of serious or life-threatening disease of the account holder or his spouse/children of parents. The amount can also be used for the higher education of the account holder. For this, he has to submit the supporting documents and bills as per the reason claimed for the premature closure of the account. This facility has given the liquidity to the account holder as he will not feel that his money is stuck and he cannot use it when he needs it the most.
- This announcement will attract many individuals who were not interested to open this account.
- In case you opt for premature closure of PPF account you need to be ready to accept the applicable penalty. As per new PPF rule 1% interest penalty is applicable for PPF account closure. This means you will be paid 1% less interest on the interest rate applicable from time to time on the deposits held in the account (e.g. 1st year, interest rate is 8%, you would be paid 7%, 2nd year, interest rate is 8.5%, you would be paid 7.5% etc.,)
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Earlier guidelines about premature withdrawal would continue and here are the details.
- A person is allowed to withdraw the amount only after the completion of five years of opening the account. If a person opens a PPF account during any time of a particular financial year, say in December 2010, his first year would commence on 1 April 2011 although he has invested in the financial year 2010-2011. So, counting from 1 April 2011, his five years ends on 31st March 2016. Before this date he is not allowed to withdraw a penny out of this account. From 1st April 2016, he can make withdrawals from PPF account. It is to be noted that only one partial withdrawal is allowed every financial year.
- The amount that can be withdrawn is equal to the lower of:
– 50% of the account balance as at the end of the year immediately preceding the current year: or
– 50% of the account balance as at the end of the 3rd year, immediately preceding the current year.
Conclusion: PPF is one of the most popular tax saving schemes for Indians. With the introduction of clause partial withdrawal, the liquidity of the funds has increased. These clauses have tried to overcome the biggest drawback of the non-liquidity of the account.
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Public Provident Fund (PPF) – New Withdrawal Rules in 2016
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i have a ppf a/c opened in 2005 and wants to close my a/c. i am a senior citizen. do i need to wait to complete 15 years or can i withdraw the full money deposited in ppf a/c?
My ppf account after further extention of five years I.e 15+5 now it will be mature on 31march 2018.I wants to extend it for further five years I.e up to 2023.but if I wants it close in year 2020 or 2022 ,than what are the provisions for closing . What will lose to me before maturity I.e before 2023.