New PPF Withdrawal rules and Premature closure guidelines

PPF withdrawal rules and its premature closure feature have further made this product more attractive for investors.

PPF is one of the commonly used Investment Instrument. Due to the Tax-free nature of return and also section 80C benefit on Investments, this has always been a darling of Investors. Even financial planners prefer to add Public Provident fund into client’s investment portfolio for long-term allocations.

But still, there are many those who avoid investing in PPF or are not so regular in their investments stating the reason as a 15-year lock-in period. They feel that with the limited income and uncertain future if they block their savings for such a long time, how would the emergency situations gets managed, and thus look out for those options which though termed as long-term ones but are liquid enough to take care of immediate requirements.

So, for all those who come into this category, it is imperative to know that though PPF has 15 years of lock-in it has partial withdrawal features in it. Also with the recent ppf withdrawal rules, you can withdraw the complete amount and close your PPF account prematurely, in the case of specified situations.

Let’s look at PPF withdrawal rules in detail and the newly announced PPF premature closure guidelines.

PPF withdrawal rules – When and how much you can withdraw from PPF account    

It is possible to make partial withdrawals from PPF account, but only from 7^th  year , pa and onwards after the expiry of five years from the end of the year in which the account was opened (as per PPF 2019 rules), lesser of the amounts as mentioned below:

-50% of PPF account balance at the end of the 4^th preceding year to the year of withdrawal

– 50% of PPF account balance at the end of the immediately preceding year to the year of withdrawal

Say for e.g. you have one PPF account opened on 30/06/2010 (FY 2010-11). Your fifth year where from you may withdraw partially from PPF account would be FY 2014-15. The immediate preceding year would be FY 2015-16 and 4^th preceding year would be 2012-13. So in this case, the amount that is eligible for withdrawal would be:

50% of the balance as on 31.03.2016 or 50% of the balance as on 31.03.2013 whichever is less.

Depending on the emergency and requirement of money, one may either get into this calculation or may also try for the Loan on PPF.

Besides partial withdrawal and Loan on PPF amount, Finance Ministry has come up with PPF premature closure provisions through a notification dated 18^th June 2016, under which PPF account holder can prematurely close his/her account under specific circumstances.

PPF Premature closure Rules

As per the new PPF premature closure rules announced, the subscriber can prematurely close his account or the account of the minor of which he/she’s a guardian, provided that account has completed 5 Financial years, for the below-mentioned reasons:

1. For the treatment of serious ailments or life-threatening diseases of the account holder, Spouse, dependent children or Parents.
2. For higher education of account holder or minor account holder or dependent children (as per PPF 2019 rules).
3. As per PPF 2019 rules, two other conditions are also added for the premature closure- change in residency status and higher education of dependent children.
   In case 1 account holder has to produce supporting documents from competent medical authority, in case 2, he has to produce Fee bills, in confirmation of admission in the recognized institute in India or abroad and in case3, copy of Passport and visa or Income tax return is to be produced.

Charges for PPF Premature closure:

If you want to close your PPF account prematurely, then you have to bear some charges too. Charges on the Premature closure of PPF would be 1%. This 1% deduction would apply to all the interest rates applied to your PPF balances as applicable from time to time, from the date of opening of the account and till the closure of the account.

Look at the table below to understand this charging structure:

PPF withdrawal rules and Premature closure guidelines – Conclusion

PPF is a long-term investment tool, however, unlike earlier the interest rates are not fixed and will vary every quarter. This necessitates investors to lower their dependence on this product and include other long-term instruments like debt mutual funds into their complete portfolio for better returns.

And also when one is getting into such a long-term product than the other aspects of financial planning like keeping an emergencynvestment tool, however, unlike earlier the interest rates are not fixed and will vary every quarter., buying required insurances etc. should already be in a place so you should not get tempted or forced to look out to redeem your investments.

But if at all, such situation arises, then you should be aware that PPF accounts do have partial withdrawal and premature closure provisions available.