June 20, 2016

Premature closure of PPF account – New Rules 2016

PPF is the wonderful debt product, which also provides the best tax benefits. But earlier there were some limitations on premature closure of PPF account. Now they are modified. Let us see those changes.

What is Public Provident Fund (PPF) Account?

I wrote a complete and detailed features about this wonderful debt product in my earlier posts. Please refer the links for the same.

Now in this post, I am trying to concentrate on the premature closure of PPF account before completion of 15 years. These changes will be effective from 18th June, 2016.

What was the earlier premature closure of PPF account rules?

Earlier PPF account will be allowed to close in the event of the death of account holder. His/her nominee will be allowed to close the account. Other than this, there is no option for an account holder to close the account.

He has to wait until maturity to close the account. This feels somewhat illiquid, even though there are options like loan and withdrawal after certain years.

What are new rules for premature closure of PPF account ?

Now there are three options to close the account. I try to list them as below.

Premature Closure of PPF Account Rules 2016

Along with that, please note below points for understanding more of the premature close of PPF account rules.

# You are allowed to close the account before maturity if the account is completed 5 years. This rule is not applicable to death of account holder.

# Regarding amount required for treatment of serious ailments or life-threatening diseases, you must produce the supporting documents from the competent medical authority.

# Regarding amount required for higher education, you must produce the documents of fee bills in confirmation of admission in a recognized institute of higher education in India or ABROAD.

# In case of premature closure of PPF account, the interest payable to such accounts will be less than 1% of regular account from the date of account opening to the closure of such account.

Let me explain the same with an illustration given in notification itself.

Penalty on premature closure of PPF account

  • Notice the maturity amount after the FY 2015-16 (which I marked in red), it is Rs.14,421.19.
  • Notice the interest rate change of 1% in case you apply for premature closure of PPF account, it is 1% less than the regular PPF account from beginning of your account to till the year you apply for closure. I marked the interest rate in red.
  • Finally, notice the maturity amount after the FY 2015-16 (which I marked in red), it is Rs.13,716.69.
  • Notice the maturity difference between two cases, it is Rs.704.50.
  • The penalty of 4.8% but not the 1% as defined in a notification. So penalty of premature closure of PPF account is not 1%, but in real it is more. 
  • The effect will be higher for the older account. It means, if you close the account immediately after 6th year, then the penalty may not me that much higher. However, if go for premature closure in the 10th, 12th or in 14th year, the penalty will grow higher and higher than the actual 1%. SO OLDER THE ACCOUNT, HIGHER THE PENALTY FOR YOU.

Hope you understood this penalty clause.

Any doubts on premature closure of PPF account new rules of 2016?

NoteNotification of New changes

54 Comments

  1. Sir, can one is able to to opt for NPS & KISAN VIKAS PATRA if he is holding a pod account with investment of 1.5 lacs every year?

    Reply
  2. Sir, What about premature closure during extension period.
    If some one have extended the PPF for 5 years after maturity & He needs money inbetween urgently. How the deduction will be made.

    Reply
      • Mare pase 1 lk 6e to mare te invest krvo 6e 1 ti 3 yet mate to best oppsn kyo

        Reply
        • Dear Daya,
          I am unable to understand your language. Can you elaborate more in English?

          Reply
  3. What if the customer extended the account for 5 years and after one or two year he wants to close the account without any specific condition I.e medical or higher education…Is it possible

    Reply
    • Prashi-Whether you are during 15 years period or the extension period, the closure rules are same which I mentioned above.

      Reply
      • If you are in 18th year the reduction in interest rate by 1 percentage point
        shall be applicable from the date of the commencement of the current 5 year block period and not
        from the date of initial opening of the account. As mentioned in Post Office SB order no 07/2017 dted 24/07/2017 wherein reference is made to Ministry of Finance (DEA) Budget division memorandum F. No.3t2t2014-NSdat ed 0T .07.2017

        Reply
        • Milind-Thanks for your sharing. Even in that case also, the calculation will be the same effective from the beginning of such block period.

          Reply
  4. I started a PPF account on 20th January 2014 i.e. financial year 2013-14. Can I close the account after showing need for higher education fees ? I know it has not been 5 years but the PPF account will complete 5 financial years on 1st of April 2018. Please inform of the date after which I can avail premature closing for higher education.

    Reply
      • I want to close the account and withdraw fund for higher education. I opened the account on 20th Jan 2014. Can you please tell me the specific date when I can approach for closing account.

        Reply
  5. hi basu,

    we opened a PPF account in the name of our son, in the same month of his birth in Dec 1999. it was extended with contribution for a block period of 5 years. this is going to mature on 01 April 2020. we have changed his account to a major soon after his birthday in this month. we wish to to withdraw some amount from his PPF account for his education. can we withdraw ? and what will be calculation of the amount ? do let us know. thanking you. ajit

    Reply
  6. Hi,
    My PPF A/C got matured in March 31, 2014. Since currently I’m a NRI, I could not extend it further. I have still not withdrawn the amount. In this case if I withdraw this amount now there will be any penalty or I should wait for another 5 years for account closure. Please advise.

    Reply
  7. Hey … need to know something, a family member mistakenly deposited an amount into the PPF account instead of savings account. What can be done now?

    Reply
    • Akansha-It is hard to get back the amount. However, you can write a letter to Under Secretary-NS Branch MOF (DEA), New Delhi-1 and try your luck.

      Reply
  8. Sir,

    Could I’m thinking of investing in a SIP for my son and SSA for my daughter. Please suggest if it’s a wise idea and also assist me the best SIP for my son. He is 8 yrs old and daughter is 6 yrs old.

    Reply
  9. Hi,

    Kindly help,Whom should I contact about the premature closure bcoz SBI staff is not ready to collect the doc’s & application.Can SBI Nodel Off. will help regarding the same?

    Thanks & Regards
    Raj Kr.

    Reply
    • Raj-Mere rejection by oral by SBI staff will not suffice. You produce the request and let them give in writing that they will not accept. Once you get the written response from them, then approach the SBI nodal office.

      Reply
      • Ok Thanks

        Reply
  10. Sir,please help me.
    Where i should submit the documents.
    Sbi manager are unaware of the process.
    They told me that its a government money so i hav to go to ministry of finance office to submit the documents.
    Whats is the procedure sir.
    If u know please let me know sir.
    Just bcz sbi staff don’t know anything about premature closure of ppf.
    How i can get my money. And in how many days .thanking you
    Please please help me sir

    Reply
    • Sushil-Let them come on road and do some other stuff than being as officials of that bank. It is their job and you submit your request to them ONLY. If they don’t know then let them learn. If they still hesitant to accept it, then let them give in a letter that you must go to Ministry of Finance.

      Reply
      • Thanks a lott sir,
        U are right sir.
        But i am also worried so
        I am going to ministry of finance today.
        I think so it is fort and still it not works i will forced them to do find somway and submit the documents to them.
        Thanking you

        Reply
          • No use of going anywhere All i can do is give the documents to sbi bank and as u said let them come on road.
            Dont know its our money and still we cant get it easily .
            Thanking you sir for yr help

            Reply
  11. Dear Sir,

    You wrote about premature withdrawal of PPF. May I know, whether central government has issued any Gazette Notification on this change of Rule to all Banks
    Or it was only a thinking.

    Reply
    • Salil-When I write something, then it is based on notifications. Hence, it is already available on Ministry Of Finance notification.

      Reply
  12. Dear Sir,
    What would be Interest deduction for premature closure of PPF during Extension period of 5 years after maturity of 15 years

    Reply
      • Its OK Sir,
        But let me clear the matter,My friend has completed 15 yrs of PPF account & extended with deposit for 5 yrs block period on 1st of April’2015,Now the account has been extended till 1st April 2020,But now he needs full money urgently,So I want to know whether the rule of premature before 15 yrs will be applicable in this case? & if applicable the interest deduction of 1% will be applied from begining i.e. 16 yrs back or from 1st of Apr’2015 from where the account is extended.
        Plese help

        Reply
        • Deepak-In my view yes and penalty will be 1% less from beginning period.

          Reply
          • OK, Thanks a lot for your kind support

            Reply
  13. What are the documents required for pre-closure of PPF account on medical ground basis?
    I asked SBI manager about the new preclosure rule of PPF account. He told he in unaware about the amended rule.

    Whom should I contact about the preclosure rule.

    Reply
    • Chinmay-YOu should produce the the supporting documents from the competent medical authority. If they don’t know, then let them learn the new rules. You have to submit to them.

      Reply
  14. Sir

    What will be pension amount for premature withdrawal after 5 years of my service in an organisation where by basic pay was Rs.69000/
    a) Will it be 69000 x 5.28

    b) Will it be 15000 x 5.28

    regards

    gurpreet

    Reply
  15. Dear Mr. Basavaraj,
    I came across to your blog regarding financial planning and related matters.
    I could observe that you are also replying to the queries of the reader in a simple language.
    Many time I have questions relating to financial matter.
    I think you will help me by answering those questions.

    Reply
  16. Hi Basu,

    I read somewhere that new PPF rule was totally scrapped with a new notification publised by EPF deptt/ministry in april -2016. So what does this mean that we have pre-closure EPF rules?

    I have joined new company few days back and would like to take out my money from my EPF account. What are the options available for me after all new rules if any?

    Reply
    • Nishant-For your information, PPF is different and EPF. Here, I am discussing about PPF but not about EPF.

      Reply
  17. Noted with Thanks.

    Reply
  18. Forgot to SAY “Thanks a ton Basu”

    Reply
  19. Is there any hidden clause to avail this benefit?

    What is the criteria and who will decide whether to approve the claim or reject. For example:

    If I earn (lets says, Rs 10 crore per annum) and I underwent a treatment which cost only 1 lakh. Will I be able to close the account. In this case my financial CAPABILITY is far more than what is needed to pay for the treatment.

    Who will decide….my financial CAPABILITY to pay for my treatment.

    Reply
    • Ravi-Your personal income not a criteria for approval of closure. If you apply and provide the necessary proofs, then they close. Anyhow, they are into profit if you try to close than YOU.

      Reply
  20. Thank you very much. Can you kindly share the information on PF, ESI, PT.

    Reply
    • Pushpalatha-All information about EPF and PPF are already available on my blog. Regarding ESI and PT, let me start.

      Reply
  21. Thanks for the clear information

    Reply

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