Loan Facility & Withdrawal Rules for Public Provident Fund(PPF):
Public Provident Fund(PPF) is a scheme created to build a retirement corpus for an individual. It is always prudent not to break up your corpus in between, as it helps you to secure your future. However, if in case of any exigency or financial crisis, PPF scheme does provide the facility of partial withdrawals and loan facility to the subscribers.
Let me take you through the withdrawal rules and the loan facility of PPF account in detail:
PPF Withdrawal Rules
PPF account gives you the provision of partial withdrawal starting from the 7th financial year of account opening. You can withdraw funds only once in a financial year in case of any extremity to meet your expenses.
The limit for partial withdrawal is subject to-
• 50% of the balance available at the end of the 4th year immediately preceding the year in which the amount is to be withdrawn
• 50% of the balance available at the end of the immediate preceding year of the year in which the amount is to be withdrawn
Let me illustrate this with an example:
Suppose, Mr. Anil opened a PPF account in Oct 2015 and is depositing a lump sum of Rs. 1,50,000 every financial year till March 31st, 2030 at the rate of 8.1% per anum compounded annually. 1st financial year for the deposit will be 2015-16, 2nd year will be 2016-17 and so on… 7th financial year, in this case, will be 2021-22 which means that he is eligible to make partial withdrawal in the account starting from April 1st, 2022.
Now, going back to the point where I used the term “Lower Of”. Let me just elaborate this with the above example:
Suppose, Mr. Anil choose to withdraw money in the 7th financial year, then the immediate preceding 4th year will actually be the 3rd financial year from the beginning i.e. 2017-18 and the immediate preceding year will be the 6th financial year from the beginning i.e. 2020-21. So now, Mr. Anil is eligible to withdraw either 50% of the balance available at the end of the 3rd financial year from the beginning i.e. 2017-18 or 50% of the balance available at the end of the 6th financial year from the beginning i.e. 2020-21, whichever is lower.
Similarly, if Mr. Anil decides to withdraw money in the 8th financial year i.e. 2022-23, then the immediate preceding 4th year will be the 4th financial year from the beginning i.e. 2018-19 and the immediate preceding year will be the 7th financial year from the beginning i.e. 2021-22 and so on…
In this way if Mr. Anil decides to do a partial withdrawal in the 15th year, then he can actually withdraw either 50% of the balance available at the end of the 11th financial year, from the beginning i.e. 2025-26 or 50% of the balance available at the end of the 14th financial year, from the beginning i.e. 2028-29, whichever is lower.
Below is the tabular representation of the above example:
Points to Remember:
• Complete withdrawal from a PPF account is available only at maturity.
• ‘Form C’ can be used to make a partial withdrawal from the PPF account.
• Withdrawal and loan against PPF are not available simultaneously. Loan can be availed between the 3rd and the 6th financial year from the account opening date. Post that withdrawal is the only option.
Note: On June 18th, 2016, Ministry of Finance had published a notice making an amendment in the Public Provident Fund Scheme, 1968. This amendment is with respect to the rules associated with the withdrawal policy of PPF corpus. As per the new scheme, a subscriber shall be allowed premature closure of his/her account or the account of a minor for which he/she is the guardian.
Loan against PPF
Customers have the provision of availing loan against their PPF account between the 3rd and the 6th financial year from the account opening date. To be more precise, customer can avail the loan facility from the start of the 3rd financial year till the end of the 5th financial year.
Let me illustrate this with an example:
Suppose, Mr. Anil opened the PPF account in Oct 2015, so the end of the financial year will be March 31st, 2016. The next financial year will be 2016-17. Starting from April 1st, 2017, Mr. Anil can take a loan against his PPF account, and can apply for the loan till March 31st 2021.
‘Form D’ is used to avail the loan.
Eligible loan amount
Maximum loan amount is capped to 25% of the balance of the 2nd preceding year from the year in which the loan is taken.
Let’s take the above example of Mr. Anil. He is eligible to take a loan from April 1st, 2017 which is the 3rd financial year, so he can take a loan up to 25% of the balance at the end of the 1st financial year i.e. March 31st, 2016 .
Similarly, if he decides to take a loan anytime between April 1st 2018-March 31st 2019, then he will be eligible to take a loan of up to 25% of the balance at the end of the 2nd financial year i.e. March 31st, 2017 and so on…
Below is the tabular representation of loan amount calculation:
The loan tenure is 36 months or 3 years and will start from the first day of the month succeeding the month in which the loan was sanctioned.
Loan against inactive account
There is no loan facility available for the inactive account. The account has to be first activated and then based on the above terms & conditions, loan can be availed.
Repayment of loan principal
The principal amount has to be repaid within 36 months from the first day of the month succeeding the month in which the loan was sanctioned. It can be paid either in a lump sum or equal installments.
Once the principal amount has been repaid, the interest has to be paid back in maximum two monthly installments.
Interest chargeable to PPF loan
Interest charged on the loan against PPF account is 2% more than the effective interest rate on the balance in the PPF account. As on April 1st, 2016 effective interest rate on the PPF account is 8.1%, so the interest on the loan against PPF will be 10.1%. From 1 Oct 2016, the interest rate on PPF has been revised to 8% p.a.
In case of default of principal
If the principal amount has not been repaid within 36 months, the interest rate will be increased from 2% to 6%.
In case of default of interest
If the interest on the principal amount is not paid within 36 months, then the outstanding interest will be debited from your PPF balance.
Frequency of loan
You are allowed to take only one loan in a financial year. Suppose you have cleared your previous loan in Oct 16, then you are not allowed to take another loan till March 31st, 2017.
What will happen in the case of unfortunate death of the account holder?
In the case of unfortunate death of the PPF account holder, nominee or legal heir has to pay the outstanding loan amount. In the event of non-payment, all the outstanding amount will be deducted from the PPF account before the closure of the account.
The longer you keep money in your PPF account; larger your corpus, safer your future. Avail loans/withdrawal only if it is inevitable.