Today I am going to make you familiar with rules and regulations PPF loan and withdrawal. I felt it necessary as a lot of PPF investors not aware about exact rules of loan and withdrawal. Even I too faced difficulty in understanding these basic things during my CFP preparation.
Suppose you opened the account on 22/12/2011 and below table will give you simple example when you can withdraw and take a loan. If you add 15 yrs (Term of PPF account) to your account opening date it will be 22/12/2026 which you think maturity date. However, it will mature on 1st April 2027 (which is first working day of FY 2027-28). Therefore, it is exactly not 15 years but in practical it is around 16 years.
Withdrawal will be available from seventh FY onward. Only one withdrawal is permissible. The amount of withdrawal will be lower of-immediately preceding fourth FY balance or immediately preceding FY balance. Therefore, from the above table you may have noticed that a loan will be available from 3rd FY to 6th FY. That is 25% of the year-end balance preceding 2 yrs of loan taking FY. You will have to repay a loan within 36 months and interest is more than what you are getting from PPF account. You will not get one more loan until you repay the existing loan. From seventh FY you are not eligible to take a loan.
Note-Effective from 1st April, 2016, one can close the PPF before the maturity. But this will be permitted in genuine cases like a serious ailment, higher education of children etc,. In addition, if you try to close the PPF before maturity, then there will be a 1% reduction overall amount as penalty. This closure is allowed only to those accounts, which completed minimum 5 years of a term.
1% reduction of interest from a whole amount as penalty for earlier closure is unwarranted. Because it is already set that such closure will be allowed in genuine cases. Then why such penalty clause?
Hope my sharing will help you all 🙂