Should you withdraw money from PPF Account to buy your home?

Can I make a premature withdrawal from my PPF account? Know all about the limits of partial withdrawal from a PPF account.

A public provident fund is one of the most popular savings schemes available in India. It is also called a savings-cum-tax savings scheme as it helps in building a retirement corpus along with saving tax. Also, a PPF is a government backed savings scheme which comes with guaranteed returns. If you are looking for a safe investment option with guaranteed returns, PPF is your best friend.

If you have invested in a PPF account, over the period of years, you will successfully accumulate a good amount. And a good amount of corpus is always beneficial. Extra income is always welcome in the family. You can utilize the amount for any given purpose.

If you are looking to withdraw money from your PPF account to buy a new home, you will have to make a partial or premature withdrawal under certain conditions. Here are a few important things to look into before taking the final steps.

To begin with, let us look at the conditions for PPF withdrawal:

From the above table, we can easily see that an individual can make a partial or premature withdrawal only after remaining invested for a given time period. You can invest upto ₹1,50,000 per financial year in a PPF account. The current PPF interest rate offered by all banks is 8% as applicable from April 1st, 2019. The rate of interest is decided by the Reserve Bank of India and changes every year.

In case you want to make a complete withdrawal, this can only be done after the completion of 15 years. Post 15 years, your PPF account reaches its maturity value. Upon maturity, the entire PPF amount along with the accrued interest can be withdrawn freely and the account can be closed.

In case you are in dire need of funds, you are allowed to make a partial withdrawal post completion of 5 years.

Premature withdrawal is allowed only under the following conditions:

1. Withdrawal can only be made post completion of 5 years from the date of account opening.
2. The premature withdrawal amount is limited to 50% of your PPF amount. Note: The withdrawal is limited to once a year, which means that you can make a premature withdrawal only once in a financial year. In case you have any outstanding loans which were taken against your PPF account balance, it will be deducted from the overall withdrawal amount.

Earlier, the Government of India did not allow closure of a PPF account before the maturity period of 15 years. In 2016, the government amended the Public Provident Fund Act and now individuals are allowed to close their accounts on a premature basis under the following conditions:

1. The purpose of withdrawal should be for financing the policyholder’s higher education or educational purposes of a minor account holder.
2. The purpose of withdrawal should be for treatment of a life-threatening disease or serious ailment. This is applicable to the life of the policyholder, his/her dependent children, spouse or parents.
3. You are required to stay invested for at least 5 years.

Note: In case of the first two options, you will be required to submit the relevant documents. If your request for premature closure has been approved, you will be paid 1% less interest rate in comparison to individuals who do not opt for a premature withdrawal.

Once you have finally decided to withdraw from your PPF account, you will have to submit an application for withdrawal in Form C at the nearest bank branch where your PPF account lies. Mentioned below are the different forms related to a PPF account:

In your case, you will be required to fill form C. This form has three sections.

• Declaration Section: This is the first section of the form where you are required to mention your PPF account number and the amount of money for withdrawal. Also, you need to mention the number of years passed since the account was first opened. You are required to present a copy of the PPF passbook along with this application.
• Official Use Section: It comprises of basic details such as date of account opening, total balance in the PPF account, date of previous requested withdrawal (if any), Total withdrawal amount available in the account, amount of money sanctioned for withdrawal, Date and signature of the person in charge - authorized signatory.
• Bank Details Section: Details related to your bank account number where the money is to be directly credited or the bank, in whose favor the cheque or demand draft is to be issued.

A Public Provident Fund Account falls under the category of Exempt-Exempt-Exempt (EEE). This means that all deposits made in your PPF account are deductible under Section 80C of the Income Tax Act, 1961. Also, the accumulated corpus amount along with the interest is exempt from income tax at the time of withdrawal. A withdrawal made from the PPF account is also tax free. However, an important thing to remember is that a PPF account cannot be closed prematurely. Only a nominee can close the PPF account on behalf of the policyholder in case of death.

On a short note, withdrawing money from your PPF account to buy a home should be an option of last resort. Availing a home loan is a better solution. Your PPF should be for retirement purposes only.

Recommended Read: What Are The Conditions To Withdraw From Employees' Provident Fund (EPF) Account?