In a notification published on June 18, the Finance Ministry has allowed PPF subscribers to partially withdraw their corpus after five years. However, withdrawals will be only allowed for subscribers and their spouses or dependent children for treatment of serious ailments. Also, subscribers or minor account holders will be allowed to withdraw money for pursuing higher education. The subscribers will have to furnish the supporting documents to avail this facility.
Financial advisors welcome the move. D. Muthukrishnan, Founder of Wise Wealth Advisors feels that it will benefit investors. “The government has allowed withdrawals only for genuine reasons like ailment and education. This is good for PPF subscribers as the investment discipline will be maintained.”
Pankaj Mathpal of Optima Money Managers says, “Now PPF subscribers will have some liquidity as they can withdraw money in case of emergencies.”
Investments in PPF are exempt, exempt, exempt (EEE) under Section 80 C of the Income Tax Act 1961. In other words, all three - the subscription amount, interest and withdrawals are tax exempt. Subscribers can claim tax benefit for the entire Rs. 1.50 lakh investment limit under 80 C. Currently, PPF subscribers get 8.1% interest (compounded yearly), down from 8.70% earlier.
The 80 C space is crowded with products like fixed deposits, home loan (principal repayment), life insurance products, which are eligible for tax benefit on investments of up to Rs. 1.50 lakh. Generally, people tend to exhaust the entire Rs. 1.50 investment limit in PPF and other products which compete with ELSS. While PPF and ELSS are not strictly comparable as they serve a different purpose, financial advisors say that investors would do well to allocate a little potion of money in ELSS to earn higher returns. When asked what he recommends investors for tax saving, Muthukrishnan says, “We recommend investors to invest in both PPF and ELSS. While PPF is meant to hold wealth, ELSS is for accumulating wealth.”
Mathpal says that he generally recommends investors not to exhaust the entire 1.50 lakh limit in PPF. “If you are investing for long term in a product like PPF, ELSS is a good alternative. Investors should split their allocation in PPF and ELSS. ELSS is the only product in 80 C category which can generate wealth for investors.”
