PPF Withdrawal Rules, Loans And Premature Closure

Here’s everything you need to know about withdrawing from your PPF account, taking a loan on it and premature closing of the account.

The Public Provident Fund (PPF) is a great savings scheme to invest in. The biggest advantage of investing in it is its EEE Tax status. This basically means that interest earned during the investment period and the proceeds upon maturity are not taxable.

However, since the lock-in period for this investment is 15 years, one may be hesitant to consider this option as investment. So, we’ll tell you all about the withdrawal rules, loans and premature closure of the PPF.

Additional Reading: Looking To Invest In PPF? Here’s What You Need To Know

If you weren’t already aware, then let us tell you that you could take a loan on your PPF and withdraw from it even before the maturity date. But, like any other scheme, this facility also comes with certain terms and conditions. Let’s take a look at these withdrawal rules for PPF.

Additional Reading: 7 Things You Should Know About PPF

Rules for taking a loan from your PPF account

• As a subscriber to this savings scheme, you are eligible to take a loan from your PPF account from the third financial year. However, this facility is available only till the end of the sixth financial year. For example, if you opened a PPF account in the financial year 2014-15, then you will be eligible to get a loan only from the financial year 2016-17 and only until 2019-20.

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• What you’ll need to keep in mind is that you cannot use the entire balance in the PPF account to avail the loan.
• The loan amount is capped at a maximum of 25% of the balance available at the close of two years immediately preceding the year in which the loan is being applied for.

Let’s say you apply for a loan during the FY 2017-18. You will be eligible for 25% of the balance in your account as on March 31^st, 2016. So, the balance will be the closing amount inclusive of interest credited to your account on March 31^st.

The (hypothetical) table below should help you understand better, assuming that the deposits are made on April 1^st of every year:

Year	Opening Balance	Fresh Deposit	Interest Rate	Closing Balance
2014-15	NIL	Rs. 1,50,000	8.70%	Rs. 1,63,050
2015-16	Rs. 1,63,050	Rs. 1,50,000	8.70%	Rs. 3,40,285
2016-17	Rs. 3,40,285	Rs. 1,50,000	8.10%	Rs. 5,29,998
Loan eligible amount  (2017-18)				25% of closing balance of 2015-16 i.e., Rs. 85,071

So, what happens if you want a loan in the next financial year 2018-19?

The amount is then calculated on 25% of the balance as on March 31^st, 2017.

• Do note that the interest rate charged on this loan taken from your PPF account will be two percent higher than the prevailing interest rate set by the government.
• Also, these interest rates will vary as the government announces interest rates for every quarter. But the good news is that once the interest rate is set for the loan, then the same will be applicable until the repayment period.
• Do keep in mind that you will not be eligible for a new loan until the old one has been repaid along with the interest.
• The loan needs to be repaid within 36 months.
• This tenure is calculated from the first day of the following month in which the loan is sanctioned.
• Upon non-repayment of the PPF loan within 36 months, the interest would then be charged at 6%, instead of 2%, from the date the loan was sanctioned until it has been paid off.
• In a scenario where the subscriber has repaid the principal amount and not the interest, then the outstanding interest will be debited from the subscribers PPF account during the tenure of the loan which is 36 months.
• The repayment of the principal needs to be done either as a lump-sum or in two or more monthly instalments.
• The interest amount can be paid only once the principal amount has been paid off.
• The repayment of interest cannot be made in more than two monthly instalments.

Additional Reading: All About PPF Loans

Rules for withdrawals from your PPF account

• You can withdraw from your PPF account starting from the seventh year. So, if you were to refer to our above mentioned hypothetical chart, your withdrawal facility will start from April 1, 2020.
• There is a limit for the money you can withdraw from your PPF account. And as per the PPF scheme, a subscriber can withdraw “lower” of the following;

(a) 50% of the balance available at the end of the fourth year immediately preceding the year of withdrawal, or, (b)50% of the balance standing at the end of the preceding year.

Let us assume your PPF account was opened during the financial year 2011-12 and you wish to withdraw your PPF in the FY 2017-18, then the calculations will be done as follows:

Year	Opening Balance	Fresh Deposit	Interest Rate	Balance
2011-12	NIL	Rs. 1,00,000	8.60%	Rs. 1,08,600
2012-13	Rs. 1,08,600	Rs. 1,00,000	8.80%	Rs. 2,26,957
2013-14	Rs. 2,26,957	Rs. 1,00,000	8.70%	Rs. 3,55,402
2014-15	Rs. 3,55,402	Rs. 1,50,000	8.70%	Rs. 5,49,372
2015-16	Rs. 5,49,372	Rs. 1,50,000	8.70%	Rs. 7,60,217
2016-17	Rs. 7,60,217	Rs. 1,50,000	8.10%	Rs. 9,83,945
Withdrawal Amount: Lower of 50% of (a) or (b)
a)     Preceding year 2016-17                                                        Rs. 4,91,972
b)     Preceding 4th year 2013-14                                                  Rs. 1,77,701

• Do note that if a subscriber has previously taken a loan which has not been repaid at the time of withdrawal, then that amount will be subtracted from the withdrawal amount he/she is eligible for.
• The withdrawal facility is available only once a year.

Rules for premature closure of your PPF account

Previously, a PPF account could not be closed before its maturity period of 15 years. But, the government recently amended the Public Provident Fund Act in 2016 and has allowed premature closure if either of these conditions are met:

• The account must have completed five financial years and,
• The amount is required for the treatment of serious medical emergencies or life-threatening disease that befalls the account holder, spouse, dependent children or parents, or
• For higher education of the account holder or in case of a minor account holder

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Additionally, the subscriber will have to produce supporting documents as required. Nonetheless, this premature closing of your PPF account comes with a catch.

You will not get the full amount as shown in your account. As per the amended rules to the PPF Act, if a subscriber wishes to use the premature withdrawal facility, he or she will be subject to one percent less interest rate from the interest rate as applicable to them at the time of opening the PPF account.

Additional Reading: All About Prematurely Closing A PPF Account

Let’s illustrate this with an example.

Year	Opening Balance	Fresh Deposit	Interest Rate	1% Less Interest	Closing Balance
2011-12	NIL	Rs. 1,00,000	8.60%	7.60%	Rs. 1,07,600
2012-13	Rs. 1,07,600	Rs. 1,00,000	8.80%	7.80%	Rs. 2,23,793
2013-14	Rs. 2,23,793	Rs. 1,00,000	8.70%	7.70%	Rs. 3,48,725
2014-15	Rs. 3,48,725	Rs. 1,50,000	8.70%	7.70%	Rs. 5,37,127
2015-16	Rs. 5,37,127	Rs. 1,50,000	8.70%	7.70%	Rs. 7,40,035
2016-17	Rs. 7,40,035	Rs. 1,50,000	8.10%	7.10%	Rs. 9,53,228

The above table suggests that if you opted for a premature withdrawal facility, the interest applicable for your deposits will be reduced by 1 percent (from 8.60% to 7.60% in FY 2011-12 and so on).

However, if you chose not to withdraw your PPF account then the balance in your account would look something like this:

Year	Opening Balance	Fresh Deposit	Interest Rate	Closing Balance
2011-12	NIL	Rs. 1,00,000	8.60%	Rs. 1,08,600
2012-13	Rs. 1,08,600	Rs. 1,00,000	8.80%	Rs. 2,26,957
2013-14	Rs. 2,26,957	Rs. 1,00,000	8.70%	Rs. 3,55,402
2014-15	Rs. 3,55,402	Rs. 1,50,000	8.70%	Rs. 5,49,372
2015-16	Rs. 5,49,372	Rs. 1,50,000	8.70%	Rs. 7,60,217
2016-17	Rs. 7,60,217	Rs. 1,50,000	8.10%	Rs. 9,83,945

Additional Reading: The Shocking Truth: PPF vs NSC – Which One’s The Better Bet?

If you think that the PPF isn’t your style of investment, then we have numerous options for you to invest your hard-earned money.