Public Provident Fund – Rules for withdrawal and availing a loan
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Public Provident Fund – Rules for withdrawal and availing a loan

  • Highlights

  • PPF is a tax-exempt financial instrument

  • Loan can be availed until the sixth year of the PPF

  • Only 25% of the closing amount can be availed as loan

  • You can withdraw from the PPF after 7 years

What sets apart a Public Provident Fund (PPF) from other investment instruments is its EEE status; the invested sum, interest earned on the investment as well as the proceeds on maturity – none of them are taxed on the investor’s part.

But every PPF has a 15-year lock-in period. Having said that, you are also eligible to withdraw as well as avail a loan from the account, but they are subject to certain terms and conditions.

This article discusses in detail the rules and process of withdrawing from a Public Provident Fund.

Availing a loan from the PPF account

An investor is eligible to take a loan from within the account from the beginning of the third fiscal year since the date of creation. However, the facility is only available till the completion of the sixth financial year. For instance, if a PPF account is created during the financial year of 2013-2014, then you can avail of a loan from the same, starting 2015-2016 (1st April, 2015) till the end of 2018-2019 (31st March, 2019).

But that doesn’t mean you can avail the entire balance as the loan – the limit is pegged at a maximum of 25 per cent of the closing balance available at the completion of two years, immediately prior to the year you decide to the take the loan. Keeping the earlier dates in context, suppose you apply for a loan in the financial year 2016-2017, then the maximum permissible value will be 25% of the closing balance as on 31st March, 2015.

FY Opening Balance (Rs.) Deposit (Rs.) Rate of Interest (%) Closing Balance (Rs.)
2013-14 NIL 1,20,000 8.7 1,30,440
2014-15 1,30,440 1,20,000 8.7 2,72,228
2015-16 2,72,228 1,20,000 8.7 4,26,351

How to Increase Your EPF Savings

Now, considering you apply for a loan in the financial year of 2016-17, then the limit will be capped at 25% of the closing balance available at the completion of the FY 2014-15.
Therefore, the loan amount will be Rs.68,057 (25% of Rs.2,72,228).
The interest rate applicable on the loan will be 2% more than the pre-determined rate of returns offered by the PPF in that particular quarter. Moreover, since the government decides on the PPF interest rate each quarter, the same levied on the loan is most likely to vary. But once set, it will remain the same till the repayment of the loan.

Remember that:
- You cannot avail of a second loan till you’ve repaid the first one.
- You will have to repay the loan amount (principal + interest) within three years of availing it.
- The three-year tenure begins from the first day of the month immediately succeeding the month in which the loan was sanctioned.
- The interest rate will shoot from 2% to 6% if you don’t settle the loan within the three-year tenure.
- In the event of any outstanding interest at the end of three years (but the principal has been paid back in full), the same will be debited from your account.
- The principal should be ideally paid back in a lump-sum or over two installments (or more).
- The interest component should be paid back in a maximum of two monthly installments (only after the principal has been paid)

Withdrawing from the PPF account

A PPF account matures at the end of 15 financial years since its creation. However, should you wish to withdraw from such an account, keep in mind that:
- A withdrawal is possible only at the end of 7 financial years.
- The limit will either be 50% of the closing balance available at the end of 4 years preceding the year the withdrawal is being made or 50% of the previous year’s closing balance, whichever is lower.
- A withdrawal is capped at only one each financial year

You can also check out all the pre-approved offers on personal, home and business loans from Bajaj Finserv. Such offers help ease the loan application and availing process.

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