Are PPF withdrawals taxable in India?
The Public Provident Fund or PPF is among the most popular small saving schemes. The PPF contributions are covered under Section 80C of the Income Tax Act, 1961. It allows investors to claim a tax rebate of up to Rs 1,50,000 and save up to Rs 46,800 a year in taxes. PPF has a tenure of 15 years and is popular for its EEE tax benefits. Therefore the amount invested in the scheme is tax-exempt (up to Rs 1.5L per FY), interest earned attracts no tax, and the maturity proceeds are also free from taxation. PPF accounts allow investors to make premature or partial withdrawals from the sixth year onwards. However, there are certain conditions to be satisfied. A PPF investor can also avail of a loan against their account balance after three years have elapsed since their account was opened. Lets now take a look at the PPF withdrawal rules:  Partial withdrawal rules  As mentioned above, the investors can make a premature withdrawal from the sixth year onwards. However, it is limited to one withdrawal per financial year. Also, you can only withdraw up to 50% of the amount accumulated in the account at the end of the previous financial year. For instance, if the balance accumulated in your PPF account was Rs 4 lakh at the end of the previous financial year, you can only withdraw up to Rs 2 lakh. The partial withdrawals do not attract any tax. You will have to submit Form C and other required documents to initiate the process. Premature closure of the account  PPF investors are allowed to prematurely close their account after five years from the date of opening their account on meeting one of the following conditions:   The account holder, spouse or children is diagnosed with a life-threatening disease   Need funds to cover the cost of childrens higher education   The resident status of the account holder has changed to Non-Resident Indian (NRI)  The account holders will have to furnish relevant supporting documents to initiate the premature closure of their PPF account. The proceeds received are tax-free. However, the interest earned by the balance in the account would be lowered by 1 percent. A PPF account is said to be matured upon completing 15 years from the date it was opened. When the PPF account matures, the account holder has the following options:   Withdraw the full amount accumulated and close the account   Extend the account over a block of five years (there is no limit on the number of extensions)  If you dont close your PPF account by withdrawing your amount upon maturity, your account will be extended by default and will continue to earn interest. If you continue the account without deposits for more than a year, you will not be allowed to make any fresh contributions to it in the extended period. However, your account would continue to earn interest, and it will be tax-free. If you wish to extend your PPF account, you have the following options:   Extend with contributions: You will continue to make fresh contributions to your PPF account under this option over the block of the next five years. You should mandatorily submit Form H, failing which would result in deposits not earning any interest and being disqualified for tax rebate under Section 80C.  Extend without contributions: Under this option, you will not be required to make any new contributions. However, the balance accumulated in the account would continue to earn interest at the specified rate until you close your account. Withdrawal rules for extended accounts   Accounts extended without fresh contributions: These accounts permit investors to withdraw an amount up to the balance accumulated in the account. Investors are allowed to withdraw only once in a financial year. The proceeds received are tax-exempt.  Accounts extended with fresh contributions: These accounts allow investors to withdraw only up to 60 percent of the balance accumulated at the time of extending the account. Also, only one withdrawal is permitted in a financial year. These withdrawals are tax-free. PPF is an excellent investment option that helps investors plan for their long-term financial requirements. You dont have to pay any tax on interest earned and proceeds realised upon maturity. Also, the facilities to avail of a loan against the balance accumulated and premature/partial withdrawal make PPF an attractive investment option. The author, Archit Gupta, is Founder and CEO at ClearTax. The views expressed are personal