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Friday, June 24, 2016

Complete Withdrawal From PPF After 5 Years, Is Now Possible

If you have a Public Provident Fund (PPF) account, there’s some news for you. You can now close your account after 5 years. Yes, you read it right. You can completely withdraw the balance in your PPF account any time after 5 years, if you satisfy a few conditions. Recently, the Government amended Public Provident Fund Scheme, 1968, relaxing the provisions of premature withdrawals with an immediate effect.

Until now, you were allowed to withdraw only after the expiry of 5 full financial years from the end of the year in which your initial subscription was made, but the withdrawal was limited to 50% of the balance at credit at the end of fourth year, immediately preceding the year in which the amount is to be withdrawn or the balance at the end of the preceding year, whichever is lower, as per the PPF rulebook. Thereafter, you were allowed one withdrawal per year. So for example, if you were to open a PPF account on April 1, 2006, you were allowed first withdrawal after April 1, 2012, and the amount of withdrawal was limited to 50% of the balance as on - March 31, 2008, or the balance as on - March 31, 2011, whichever is lower; subject to loan taken on your PPF account.

What has changed?
Now after the expiry of 5 years, you’re allowed to close the PPF account and withdraw all the money, on the grounds that the amount is required for treatment of serious ailments or life-threatening diseases that you, your spouse, dependent children or parents may suffer. However, to be able to do so, you have to produce the documents supporting this claim signed by a competent medical authority.

Likewise, if you need money to fund your children’s higher education in India or even abroad, the Government has relaxed premature withdrawal norms. But here too, proofs such as fee bills and other documents confirming the admission in a recognised institute are required. It is noteworthy that, the wording of Government notification is silent about you withdrawing money from your account for the children’s higher education. However, if the account holder is a minor, you as his/her guardian, can withdraw money for his/her higher education.

But this facility comes with a penalty...
The Government will allow premature closure after deducting interest @ 1% for the entire holding period. To be fair, the Government has stated it will be assumed that the applicable rate of interest on such accounts was 1% lower for each year than the applicable rates. Therefore, instead of deducting 1% flat at the closure, the calculation will be done backwards for each year, to arrive at the amount that is to be deducted from the accumulated funds in the account.

Admittedly, this is nearly impossible to understand without any illustration. Suppose you open a PPF account in your name on April 1, 2006 and religiously deposited Rs 12,000 in first 5 days of every financial year. Now if you plan to close your account on March 31, 2016, the full and final settlement of your account would be done in the following manner.
Premature Closure of PPF Account...
Year Opening Balance Fresh Deposits Total Amount Normal
Rate of Interest
Rate Applicable
On These Accounts
Interest Accrued Outstanding Balance
2006-07 0 12,000 12,000 8.0% 7.0% 840 12,840
2007-08 12,840 12,000 24,840 8.0% 7.0% 1,739 26,579
2008-09 26,579 12,000 38,579 8.0% 7.0% 2,701 41,279
2009-10 41,279 12,000 53,279 8.0% 7.0% 3,730 57,009
2010-11 57,009 12,000 69,009 8.0% 7.0% 4,831 73,839
2011-12 73,839 12,000 85,839 8.6% 7.6% 6,524 92,363
2012-13 92,363 12,000 104,363 8.7% 7.7% 8,036 112,399
2013-14 112,399 12,000 124,399 8.7% 7.7% 9,579 133,978
2014-15 133,978 12,000 145,978 8.7% 7.7% 11,240 157,218
2015-16 157,218 12,000 169,218 8.7% 7.7% 13,030 182,248
(Note: For illustration purpose only; based on actual interest rates and other provisions of PPF)

So in the above case, a sum of Rs 1,82,248 will be payable to you. The following table shows you how your account would have otherwise worked had you continued.
Under Normal Circumstances, Your PPF Account Would Work Like This...
Year Opening Balance Fresh Deposits Total Amount Rate Applicable
On These Accounts
Interest Accrued Outstanding Balance
2006-07 0 12,000 12,000 8.0% 960 12,960
2007-08 12,960 12,000 24,960 8.0% 1,997 26,957
2008-09 26,957 12,000 38,957 8.0% 3,117 42,073
2009-10 42,073 12,000 54,073 8.0% 4,326 58,399
2010-11 58,399 12,000 70,399 8.0% 5,632 76,031
2011-12 76,031 12,000 88,031 8.6% 7,571 95,602
2012-13 95,602 12,000 107,602 8.7% 9,361 116,963
2013-14 116,963 12,000 128,963 8.7% 11,220 140,183
2014-15 140,183 12,000 152,183 8.7% 13,240 165,423
2015-16 165,423 12,000 177,423 8.7% 15,436 192,859
(Note: For illustration purpose only; based on actual interest rates and other provisions of PPF)

Now you must have observed the difference. Since you earn 1% lower each year, you receive a considerably lower amount at the premature closure.

PersonalFN believes, the Government by permitting access to money in case of dire urgency has addressed to the liquidity needs. But we think that you would be better-off not banking on your PPF account to cater to medical emergencies. Instead it would wise to build a sufficient contingency fund and buy a health insurance policy with an adequate coverage amid times when healthcare cost is galloping. Likewise, to address to your child’s higher education needs, engage in prudent financial planning right since the time he/she attends playschool or Kindergarten; the earlier the better, and invest in suitable wealth creating investment avenues that can keep pace with rising cost of higher education.

The above approach would ensure that you do not touch your retirement savings until you actually retire. PersonalFN believes, rather than being in a situation where you have no option but to close your PPF account, you should plan to handle contingent situations and financial goals in life in an efficient manner. At PersonalFN, we help people achieve their financial goals by offering unbiased and independent advice on financial planning and investment planning.
Tax evaders are going to have a tough time now. In a drive to increase the number of taxpayers and ensure more people pay income tax, the Central Board of Direct Taxes (CBDT) is gearing up. Recently, the Prime Minister, Mr Narendra Modi advised the CBDT to take the number of taxpayers to 10 crore from current 5.4 crore.

Addressing a joint conference held for the CBDT and CBEC (Central Board of Excise and Customs), Mr Modi said, “While there should be respect for the rule of law among all citizens, and even fear of the long arm of the law for those who evade taxes, people should not fear tax administrators.”

The Prime Minister also provided tax boards with a roadmap for achieving administrative reforms in tax departments. He expects the tax departments to improve their performance in the following areas.

The potential positives of the scheme:
  • Revenue
  • Accountability
  • Probity
  • Information
  • Digitisation
Taking cues from the Prime Minister, CBDT seems to have decided to get tough on tax evaders and on those who don’t file tax returns despite being required to submit. The department has identified three categories to target non-filers...
  • Those who pay some tax but don’t file returns;
  • Those who pay no tax or file returns but have performed some PAN based transactions; and
  • People about whom only non-PAN based information is available
The tax department also endeavours to maintain the records of non-filers, and follow them meticulously to identify those who are likely to miss their tax liabilities in future. The taxmen are expected to improve their criminal investigation abilities and establish prosecution even in cases where the disputed tax liability is lower than Rs 50,000.

And here are the punitive measures...
  • Henceforth, the taxmen may block the PAN numbers of tax evaders;
  • If needed, credit lines may be cut
  • You may even be denied cooking gas subsidies
  • Once the PAN is blocked, registering properties may get difficult for tax evaders.
The CBDT has a target of a little over 8.47 lakh crore for FY 2016-17. Thus it’s a blow tax evaders with a directive to take harsh measures to increase tax collection. PersonalFN, believes paying tax apart from being a constitutional duty, should be viewed as moral responsibility that should not be dodged at any cost. Always pay your tax dues and file returns on time.

How far from the truth is it to say this Government is short on ideas to raise revenues? While it speeds up the process of implementing reforms, by clearing more projects and scaling up infrastructure, it uses dirty tactics to accumulate funds for them. When a road is constructed or a port is built, the ministry will claim credit and it should. However, nobody bothers to check where the funds came from to execute these projects. Does this Government have the courage to publicly admit that it trampled the dreams of citizens and siphoned their money to fund developmental projects?

The last thing on Earth the Government can do is to utilise a citizen’s assets for the National Agenda without one’s consent. It is planning to channelise unclaimed deposits in EPF, PPF, and Small Savings Schemes (SSS) to fund various projects of national interest. The present Government may not be as corrupt as the previous Government was, but, then, why it is desperate to demonstrate its moral hazards by doing something as devastating as channelizing personal assets of the poor/common man to the Nation’s coffers. This is not a case of Minimum Government and Maximum Governance.

India’s Finance Minister, who himself is a renowned lawyer, laid the foundation for this loot in Budget 2016-17. The Government proposed to set up a fund backed by unclaimed deposits in aforesaid schemes to finance the welfare programmes for elderly people. As reported by the Economic Times dated June 15, 2016, the unclaimed money lying in EPF accounts is worth a whopping Rs 43,000 crores. No wonder the Government is trying to acquire it, by hook or crook. At present, no other established source can feed it such a large sum of money in one go. The question is, why does anyone have to claim their money? Why can’t it be automatically paid back to a person it belongs to?

That being said, the Employees Provident Fund Organisation (EPFO) has taken some initiatives to identify and reach the account holders who have failed to claim their deposits. The Government is wasting no opportunity to assert its achievements and has been shouting about them from the rooftop. Why the same approach cannot be adopted to tracing these account holders?


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