The Public Provident Fund (PPF) is one of the most-prefered tax-saving investment under Section 80C. A large part of the Indian population invests in the PPF to save taxes but very few are aware that they can make premature or partial withdrawals from their PPF account.
Rules for partial withdrawal from PPF
The PPF rules mandate that account holders who have completed 6 years in the scheme can withdraw partially from their accumulated savings. The amount that can be withdrawn can be a maximum of 50% of the closing balance at the end of the 4th year coming before the year of withdrawal. If you consider withdrawing at the end of your 7th year in the scheme, the amount would be 50% of the closing balance at the end of the 5th year. And so on.
This process has been elaborated in the following example. Let’s say you began your PPF account with an annual investment of Rs 1,000. At the current rate of 8.7%, you would earn an interest of Rs 87 and your closing balance for the first year would be Rs 1,087. Now, since the PPF returns are compounded annually, this means that you would earn interest on your second year’s deposit as well as your first year’s interest. This way, your closing balance at the end of the 4th year would be approximately Rs 3,553. You would be eligible to withdraw 50% of this amount after you complete 6 years in the scheme.
Account holders can make one premature withdrawal from their PPF account each year. This amount does not have to be repaid and there is no tax on the amount withdrawn. To initiate a partial withdrawal from your PPF account, you need to fill up a form with the bank or post office where you have the account.
Should you withdraw from PPF?
Now, the question to be answered is whether you should withdraw partially from your PPF account or not. We believe that you should only in the case of emergencies where you don’t have any other option. One of the benefits of the 15-year lock-in that the PPF comes with is that it forces you to invest every year and stay invested for a long period. This is the best way to build a corpus for your long-term goals like children’s education, wedding, a house you want to buy or your own retirement. Added to this is the fact that PPF earns you compounded interest. Hence, the more money you have invested in the scheme, the more interest you will earn.
These two factors are the reasons why you should withdraw partially from PPF only in the case of crises where you don’t have anywhere else to get money from. The best way to get the most out of the Public Provident Fund is to stay invested fully for the entire term.