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Most people are aware of how PPF works and how interest is calculated on PPF account balance. After all, they are investing in PPF to earn interest on their contributions.
And being a long-term savings product, it is also well known that this tax-saving PPF has tenure of 15 years. But many PPF investors aren’t very sure about PPF Withdrawal Rules and what are the options available to them after maturity in 15 years. And this is what I wanted to write about in this post. Some questions that will eventually get answered by the end of this post are:
- What are the PPF Maturity Rules?
- What are the PPF Withdrawal Rules?
- What are the PPF Withdrawal Rules after 15 years?
- Can PPF account be extended after maturity at 15 years?
- What are the PPF Withdrawal Rules 2019 2020?
- And similar aspects…
The very first thing to understand for you is that PPF follows the concept of financial years.
So the calculation of when the tenure of 15 years gets over depends on this. What this means is that if let’s say you opened your PPF account on 27th October 2019, then it will not mature exactly 15 years after (on 27th October 2034). Rather, it will mature on 1st April 2035 as the 15-year counter starts from 1st April 2020 (and not on the exact account opening date).
To summarize, PPF account matures 15 years from the end of the financial year in which the PPF account was opened.
With that clear, let’s move on.
Once the PPF account matures after 15 years, what options do you have?
At maturity, there are three options for you:
- Close PPF Account after 15 years and withdrawal the entire PPF account balance
- Extend PPF Account for 5 more years without any additional contributions
- Extend PPF Account for 5 more years with additional contributions
Let’s see these in detail one by one:
1) Close PPF Account on maturity after 15 years
This is the most common thing people do. After the 15 years PPF lock-in period is over, your PPF account matures. So you can close it and withdraw the entire PPF corpus (entire contribution made towards the account along with the interest that has been generated) tax-free.
Note – It is said you should never take financial advice from banks. It is applicable in case of PPF too as there have been cases where bankers only inform (or misinform) PPF account holders wrongly that this is the only option they can avail – to close the PPF account after 15 years. But in reality, there are two more options as discussed below.
2) Extend PPF account for 5 years without further contributions
You have the option to extend your PPF account after maturity in 15th year by another block of 5 years, without making any additional contribution in those extended 5 years.
And this is the default option for PPF accounts if you neither close it specifically nor extend it with contributions.
You are allowed to extend your PPF accounts by 5 years any number of times (assuming you live that long). There is no limit to the number of 5-year extensions of PPF account and you continue to earn interest on the PPF account balance available every year.
What about withdrawals from these extended PPF accounts (without contributions)?
You can withdraw the full amount that was available at the time of maturity (or beginning of extension period). But in a financial year, you can make only one withdrawal.
3) Extend PPF account for 5 years with contribution
Under this PPF extension option, you can extend the PPF account with contributions. By extending, you are allowed to make contributions and the interest will continue to be generated on the fresh contributions (+ existing PPF corpus) made towards the account as well.
But it must be noted that you need to submit the application before the completion of 1 year from the date of maturity. If you don’t submit the application (and neither close the account), then the second option of PPF extension without contribution will be activated automatically.
Now you may ask whether you can make withdrawals from PPF account after extension with contributions?
There are limits but you can do it.
Once the PPF account is extended (with contributions), you can only withdraw up to 60% of the balance that was accumulated at the time of extending the PPF account (at the beginning of each extended block of 5 years). Also, you can make only one withdrawal in a financial year.
So lets say you accumulate Rs 1 crore in PPF, and you take the PPF extension for 5 more years with contribution, then you can only withdraw 60% of the balance at the beginning of the extension period, that is 60% of Rs 1 crore – only up to Rs 60 lac can be withdrawn either in a single withdrawal or in installments in each of the 5 years.
Note – To estimate how much you can save using PPF, you can use this Free Excel-based PPF Maturity Calculator.
It is important to note that once you have chosen an option (between without-contribution or with-contribution), you cannot go back to the other option before the end of the 5-year extension term. But once the 5-year block is over, you are once again free to choose any of the three options, after every such extension.
That was about PPF Exit & Extension Options after 15 years of maturity for resident Indians. But what about NRIs and PPF?
PPF Account & Maturity Rules for NRIs
- The NRIs aren’t allowed to open new PPF accounts.
- But if they already had PPF account opened before they became NRIs, then it can to be continued until maturity in 15th year.
- After maturity, the PPF corpus amount has to be withdrawn and the account will be closed.
- No extension of PPF accounts is allowed for NRIs as we discussed for resident Indians earlier.
Now let’s look at how and when partial withdrawals can be made from PPF before maturity?
PPF Partial Withdrawals Rules
PPF account matures in 15 years. But you can partially withdraw money in certain cases and subject to PPF Withdrawal Rules.
Following points must be noted:
- The option to make partial withdrawals is available only from the 7th financial year from the date the PPF account opening. For the first six years of PPF account, partial withdrawals are not allowed.
- You are only allowed to make one partial withdrawal in a financial year from your PPF account.
- You are only allowed lower of the two – i) 50% of the PPF account balance at the end of the financial year immediately preceding the current year, or ii) 50% of the PPF account balance at the end of the 4th financial year preceding the current year.
- The amount withdrawn from PPF is tax-free.
Now you may ask, what if you need money before the 7th year of PPF account opening?
At this let me say that PPF is a long-term savings product where it is expected that you do no withdraw from it. That is how the product is designed. But there can be situations where you really do need the money back from the PPF. For that, rules of partial withdrawal are discussed above. But withdrawals are allowed only after 7 years of PPF.
If you need some money before that, then you need to take a loan against the balance in PPF account.
Loans against PPF Account Balance (Latest Rules)
If you need, then you can take a loan against your PPF account from the 3rd to 6th year. That is, you are allowed to take loans from PPF till the time you cannot withdraw from the PPF account from 7th year onwards. And consequently, no loan facility shall be available after the 7th year.
The maximum PPF loan amount is capped at 25% of the balance at the end of two preceding years. And you have to pay an interest which is 2% more than the prevailing interest rate of PPF. The loan should be cleared within 36 months and you can only take a fresh loan after the previous loan is cleared.
Let’s now move on to another question – What if for any reason, there is a need to close the PPF account prematurely?
It can be done but only under certain conditions.
Premature closure of PPF Account
- Premature closure of PPF account is allowed only after completion of 5 financial years.
- Premature closure is allowed only if the account holder, spouse, parents or children are suffering from a serious disease or life-threatening ailments and the money is used for their treatment. Or to finance the higher education of the account holder or their children. However, documentary proof regarding these reasons would be required.
However, I would like to say here that before you try and withdraw from PPF, you should think carefully about it as PPF is a great instrument to accumulate substantial corpus in a risk-free manner. And if you withdraw from it, then you are disturbing the compounding of money in between which can reduce the final PPF corpus.
That’s all there is to discuss about the latest PPF Maturity and Withdrawal Rules (Updated 2019 2020).
There is no doubt that in spite of the competition faced from other retirement savings products like NPS (read PPF vs NPS (National Pension System) and equity-based ELSS schemes (read PPF vs ELSS (Equity Linked Savings Scheme), the Public Provident Fund continues to be one of the best tax-saving investment option that doubles up as a good savings product too. We must not forget that both ELSS and NPS have equity in their portfolios whereas PPF has a pure debt investment portfolio. So when it comes to debt savings products, then in spite of the gradual trend of PPF rate cuts in recent years, PPF continues to be a great product (other being some categories of debt funds).
When it comes to PPF Tax benefits, the investment amount is eligible for tax deductions under Section 80C of the Income Tax Act, the interest earned is also tax-free and so is the maturity amount. So, PPF comes under the rare EEE or Exempt-Exempt-Exempt category of investments In India.
Hope you found this discussion of PPF Maturity & Withdrawal Rules 2019 and PPF Maturity & Withdrawal Rules 2020 useful.