PPF: There are often discussions about Public Provident Fund (PPF). Sometimes it is about its compounding concept and sometimes about the process of depositing money in it.
PPF: Very few people know that as per the current rules, PPF can also be used as a monthly income in the form of pension. This means that if you have a sufficient amount in PPF, then you can use it as a pension. PPF is one of the most attractive financial tools in the investment portfolio. Many financial influencers, who are engaged in the equity market, try to tell you the opposite. The government has maintained the interest rate of PPF at 7.1 percent since 2020, but it still remains a favorite investment for many people.
Question- Can PPF become a source of regular income after your retirement?
Let’s know how a PPF account works. It can be more beneficial for those who have old, well-funded PPF accounts and who want a fixed income after their working life.
How much can you withdraw from PPF?
The first option is to close the PPF account after completion of the 15-year time period. The second option is to extend it for five years ‘without contribution’. The third and last option is to extend it for five years ‘with contribution’.
PPF subscribers can extend their accounts indefinitely in blocks of five years each. Thus, with repeated extensions, it is possible to continue your PPF account for 20-35 years. This extension facility makes PPF a strong investment option. If you plan it well, it can help you create a regular and tax-free income source in the years after retirement.
Tax-free interest
When your PPF account completes 15 years and you extend it for another five years with or without contribution, your PPF balance continues to earn tax-free interest.
The most important thing while extending PPF is that you can withdraw money from your account once every year. If your PPF account is extended for five years without contribution, you can withdraw as much money as you want from your account. And if your account is extended ‘with contribution’, you can withdraw a maximum of 60 per cent of your account balance at the beginning of the extension period.
How to use PPF as a pension tool-
Suppose you and your partner have been regularly depositing money in PPF. On completion of 15 years, you and your partner’s PPF accounts have accumulated Rs 40 lakh. Since your accounts have completed 15 years, you can choose to extend them for another five years.
The current PPF rates are 7.1 per cent. So, you can safely withdraw up to 7 per cent of your PPF account every year. This means you can withdraw Rs 2.8 lakh from each account, and a total of Rs 5.6 lakh at the end of each financial year.
This means at 7.1 per cent interest rate, your principal is protected and the PPF interest is tax-free. So, combining both, you get Rs 5.6 lakh as tax-free income every year. In monthly terms, this works out to around Rs 46,000-47,000 per month as tax-free pension.
This is a good option for older people who have large PPF accounts and need regular income. Note that whether you grow the account with contributions or without contributions, it does not matter as in both cases you can withdraw money once a year and within the prescribed limit.
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