PPF account is a long-term investment option and has a maturity period of 15 years. PPF accounts can be extended in blocks of five years. Financial planners say that for risk-averse investors, PPF is one of the most suitable schemes for savings towards retirement. PPF accounts typically provide higher interest rates than bank deposits. PPF contribution up to Rs. 1.5 lakh in a financial year is eligible for tax deductions under Section 80C of the Income Tax Act. PPF accounts provide the option of partial withdrawals.
Income Tax Treatment Of PPF Partial Withdrawal
Partial withdrawals from PPF accounts are permissible every year from seventh financial year from the year of opening account, according to India Post website. If the PPF accounts are extended beyond the maturity of 15 years, partial withdrawals can also be made. Tax experts say that PPF partial withdrawals also don't attract any tax. "PPF deposits fall under the EEE (Exempt, Exempt, Exempt) tax category, which means an investor is not liable to pay tax at all three levels - investment, earning and withdrawal. All payments from PPF shall be exempt from tax under Section 10 (11) and partial withdrawals or premature closure are not exceptions," says Naveen Wadhwa, DGM at Taxmann.com.
(Read: Why You Must Deposit Money In PPF Accounts Before Or On 5th Of Every Month)
"In other words, investors shall not be liable to pay any tax on the interest portion or the principal sum received on premature closure of the PPF account," Mr Wadhwa adds.
A PPF account holder can avail of loan facility in the third financial year, from the financial year in which the account was opened. A loan can be taken up to 25 per cent of the amount in the account at the end of the second year immediately preceding the year in which the loan is applied for. The PPF investor can repay the loan in lump sum or instalments.
(Post Office Saving Schemes: Interest Rates Offered On PPF, NSC, SCSS)
Once the PPF investor repays the first loan, a second loan can be obtained. This loan facility is available till the end of fifth financial year from the end of the financial year in which initial subscription was made. PPF investor can take a loan only once a year.