Public Provident Fund (PPF) is a good way for all working professionals to use their salaries in an agreeable way. This is because PPF is under EEE status and any later gains you may make as part of the PPF scheme is not taxable.This serves as an added incentive to most working professionals to be a part of the PPF scheme. However, there are certain rules that you need to be aware of while withdrawing your PPF. Here is a comprehensive look at those rules that you should be aware of while dealing with PPF.
The Rules of PPF Withdrawal
PPF will only reach full maturity in 15 years. It is not possible to withdraw the full amount until this time frame is reached. However, it is possible to take out a partial loan from your PPF in case of emergency. There are rules in place to deal with this sort of withdrawal. For instance, partial withdrawal is allowed by the end of the sixth financial year since you had first opted to be part of the PPD scheme. It is also important to remember that it is only possible to withdraw 25% of your already available PPF balance in case of premature withdrawal.
In case of premature withdrawals, the abiding interest rate on the amount you had withdrawn would be 2% more than the prevailing interest rate set by the government. This rate will also be subject to change as the government varies the PPF interest rate every quarter. Essentially, premature withdrawals can lead to fluctuating interest rates on the amount you will eventually have to pay back.
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Returning The Loan
The amount withdrawn as part of the PPF will need to be returned in a time frame of 36 months. In case the borrower fails to return the sum in the stipulated time period, the availed interest of 2% will be increased to 6%. A similar scenario will follow in case the borrower fails to pay back any part of the interest instead of the principal that was initially removed as a loan. This will mean that the outstanding interest will be debited from the account of the borrower during the time frame of 36 months.
Other Things To Remember
It is possible to take withdrawals from your PPF account from the 7th year of its initiation. However, it is also possible to withdraw less than 50% of the available balance in your account by the end of the 4th year. The maximum amount one can deposit on a PPF account is 1.5 lakhs. It is also important to remember that only one PPF account can be maintained by an individual. There is also a minimum deposit limit to PPF accounts for a particular year, which is Rs. 500.
PPF is an important part of a salaried individuals life. It provides flexibility in cash accumulation and even provides an avenue for money generation in case of an emergency. Ideally, being part of a PPF scheme not only provides you with a nest egg but at the same time has the potential to solve your immediate financial problems.