RSS
Aside
02 Aug

Public Provident Fund (PPF) is an ideal vehicle for long term investment in debt category. It is an important retirement saving tool for individuals, more so for those who are not salaried employees.
Public Provident Fund (PPF) is an ideal vehicle for long term investment in debt category. It is an important retirement saving tool for individuals, more so for those who are not salaried employees.
For salaried individuals, certain percentage of their salary, which is match by his / her employer, mandatorily gets invested in Employees’ Provident Fund. However, for other individuals such as businessmen, there is no such mandatory deduction from income. Hence, it is important to have PPF as one of the investment vehicle for retirement savings.
Basic features of PPF:
PPF scheme is governed by The Public Provident Fund Act, 1968 and the scheme formulated thereunder. Any individual can open a PPF account for himself or on behalf of minor. NRIs are not eligible to open a PPF account.
One need to invest a minimum of Rs500 and can invest up to a maximum of Rs70,000 per annum in a PPF account. Maximum limit of `70,000 also takes into consideration investment in minor’s account. Interest is calculated on the lowest balance between the close of the fifth day and the end of the month and shall be credited to the account at the end of each year at the rate notified by the government. Since March 2003, interest is paid @ 8% p.a.
The tenure of the investment is 15 years; however the actual term is slightly higher (more on this below). The contribution to PPF is allowed as deduction under Section 80C of the Income Tax Act.
Further, the maturity proceed along with interest is entirely tax free.
Tip: Since Section 80C allows you to claim deduction for your spouse as well as children, one can claim entire benefit of Section 80C up to Rs100,000 just by investing in PPF account, dividing the contribution between self, spouse and children.
Other important aspect of PPF investments:
While above are the basic features of PPF investment which everyone knows, one should also be aware about other important aspects. For e.g, Are you aware that your PPF investment is protected against attachment under any decree or order of any court in respect of any debt or liability?
This means that in case of any liability, the creditor or bank cannot recover the said amount from your PPF account. Further do you know that the actual tenure of PPF is more than 15 years? It can be anywhere from 16 years 1 day to 17 years depending on the date of opening the account. Let’s discuss such features in detail.
1. PPF funds are protected against attachment under any decree or order of any court in respect of any debt or liability.
2. One can make investment for maximum 12 times in a year.
3. In case, one fails to contribute minimum amount of Rs500 for a year or for few years, such default can be condoned by paying Rs50 per year of default along with contribution of Rs500 for each such defaulting year.
4. Partial withdrawal is permissible after five years from the end of the year initial investment was carried out. Such withdrawal is restricted to lowest of 50% of the following amount:
i. Balance outstanding at the end of the forth year immediately preceding the year of withdrawal or
ii. Balance outstanding at the end of preceding year.
For example: Let’s assume Year 1 is the year you opened the PPF account. You will be able to make partial withdrawal from Year 7 (i.e. after 5 years from the end of the year initial investment was carried out). The maximum amount permissible will be calculated as lower of 50% of:
i. Balance outstanding at the end of Year 3 or
ii. Balance outstanding at the end of Year 6.
However, only one withdrawal is allowed in a year.
5. PPF account can be closed after the end of 15 years from the end of the year initial subscription was made. Hence the term of the PPF account can be anywhere from 16 years 1 day to 17 years.
There is also an option to withdraw over a period of time. However, only 1 withdrawal can be made in a year.
Tip: It is advisable to open the account in the month of March, rather than in April. This way your term will be restricted to just little more than 16 years.
6. After the end of 15 years, it is possible to continue the PPF account. It can be done by submitting the prescribe form along with the contribution for that year before the end of 16th year.
This continuation is for further block period of 5 years which can be further extended for another 5 years and so on.
Withdrawals are possible provided that the total of all withdrawals shall not exceed 60% of the outstanding balance at the commencement of the said block period.
For example: Assume at the end of 15 years, you have Rs30,00,000 in your PPF account.
In case you have opted for continuation for another block of 5 years, you can withdraw maximum of Rs18,00,000 (60% of Rs30,00,000) during the said 5 years.
7. One can avail loans on PPF investment. Technically loans can be availed from 3rd year but before the expiry of five years.
Loan amount is capped at 25% of the balance outstanding at the end of second year immediately preceding the year in which loan is applied for.
For example: In case you wish to apply for loan in the Year 4, maximum you can apply for will be restricted to 25% of the amount outstanding at the end of Year 2.
Such loan has to be repaid within 36 months. This period is calculated from next calendar month. Repayment can either be lumpsum or by two or more installments.
After principal repayment, interest has to be paid @ 1% in not more than two monthly installments.
Thus the effective rate of interest is PPF rate + 1%. Interest is calculated for the period commencing from first day of month following the month in which loan is drawn till the last day of the month in which the last installment is paid.
Tip: Since the interest amount is fixed irrespective of the quantum and timing of principal repayment over the period of 36 months, it is advisable to pay the entire principal during the later period of 36 months.
In case, loan is not repaid in full within above prescribed 36 months, interest rate on outstanding balance is charged @ 6% commencing from first day of month following the month in which loan was taken up to the last day of the month in which the last installment is paid.
8. One can make nomination for receipt of PPF balance in the event of the death of subscriber. However, trust cannot be a nominee.
In case no nomination is carried out, then the legal heirs have to submit application for withdrawal of funds in Form G along with necessary supporting to prove their ownership.
In such cases, the legal heir can withdraw up to Rs1 lakh without any ownership proof, provided they sign the prescribed indemnity letter. For any amount above Rs1 lakh, they need to submit
all salaried people contribute a certain percentage of their salary towards their Employee Provident Fund (EPF) account every month. While most of us know that EPF is an effective tool that helps generate a corpus for life post retirement, many of us are unaware that you can make a withdrawal from your EPF account for urgent cash requirements.

However, an EPF account cannot be treated like any other saving bank account implying that there are certain specified criteria under which withdrawal is permitted from an EPF account. An individual needs to furnish all relevant documents and satisfy the necessary requirements in order to be eligible for premature withdrawal of EPF.

Here are the categories and other details with respect to premature withdrawal from EPF.

Reason

Requirement

Amount allowed

No. of times permitted

 

Education or marriage

> The employee should have completed at least 7 years of employment or service.
> Withdrawal allowed for self, sibling(s) or children’s marriage.
> Withdrawal permitted for self or children’s education only.
> Proof of the education or wedding required to be submitted, such as a valid copy or a bonafide certificate of the payable fees or the wedding invitation.
> In case of education, the individual needs to apply in Form 31 through his/her employer

50% of the total corpus amount till date

Permitted thrice only during a person’s total service tenure

 
 
 
 
 
 
 
 
 

Medical treatment

> Withdrawal permitted for medical treatment of self, spouse, parents and children.
> There is no restriction regarding the number of years of service.
> The proof of hospitalization for a month or more along with an approved leave certificate from the employer for the corresponding period needs to be produced.
> The member needs to obtain and deposit a certificate from the employer or ESI stating that ESI facility is not accessible or available to him/her.
> A certified proof or document of the disease should be submitted in Form 31 while applying for withdrawal.

6 times the monthly salary of an individual or the total corpus amount, whichever is lesser

Anytime

 
 
 
 
 
 
 
 
 

Purchase of a plot

> Should have completed at least 5 years of service.
> The plot or property should be registered in the person’s or his/her spouse’s name or should be owned jointly
> The plot should not be entangled in any legal issues and the agreement registered under the Indian Registration Act with the Flat Promoter needs to be submitted along with the application form.

Up to 24 times the salary of the individual

Once during entire service tenure

 
 
 
 
 

Construction or purchase of a flat, house or plot

> Should have completed at least 5 years of service.
> The house should be registered in the person’s or his/her spouse’s name or should be owned jointly.

36 times the monthly salary of the individual

Once during entire service tenure

 
 
 

Repayment of Home Loan

> Should have completed at least 10 years of employment.
> The house should be registered in the person’s or his/her spouse’s name or should be owned jointly.

36 times the monthly salary of the individual

Once during entire service tenure

 
 
 

Alteration or Renovation of house

> Should have completed at least 5 years of service.
> The house should be registered in the person’s or his/her spouse’s name or should be owned jointly.

Up to 12 times the individual’s monthly salary

Once during entire service tenure

 
 
 

Pre-retirement

> The individual must be at least 54 years old.

90% of the total corpus amount

Once during entire service tenure

 

 

 

 

 

Withdrawal from EPF after leaving an Organization

On switching jobs, an employee can apply for transfer of money from the EPF account through a form which is filled by the employee and attested by the designated authority at the employer.

Withdrawal of money from the account in between two jobs is illegal and is permissible only under the following two circumstances:
>When a member is in between two jobs >If the member has been unable to find another job for over two months

Grievance related to withdrawal from EPF:

There is a mechanism to address grievances of EPF members which comes under the Consumer Protection Act. To report a grievance, a member needs to:

>Log on to the website http://www.epfigms.gov.in >Click Register Grievance >Enter the details and information in the specified field.

All grievances related to the following subjects can be addressed to the grievance cell:

>Withdrawal or final settlement of EPF >Scheme certificate >Transfer of accumulated PF amount >Issuance of PF balance or slip >Return or misplacement of cheque >Payment of insurance benefit

EPF is the corpus that helps build financial stability post retirement. It is, therefore, advisable to leave the amount undisturbed during employment tenure unless the circumstances are unavoidable.

 

5 ways to withdraw PPF

Advertisements
 
Leave a comment

Posted by on August 2, 2013 in Uncategorized

 

Tags: , , , ,

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s

 
%d bloggers like this: