Public Provident Fund: PPF premature closure of account rules, interest rate, important conditions to know

PPF premature closing of account: You can use your Public Provident Fund (PPF) deposits for meeting financial needs in future as well as for retirement planning. The healthy rate of interest (8% at present), which is compounded annually, ensures that your deposit grows into a big lump sum by the time your account matures. Not only this, you can make premature closure of the account to fund immediate needs such as treatment of serious ailments or for funding higher education of your child. In the second case, the account should be in the name of your child. You can also avail the premature closure facility to fund your own higher education.

PPF premature closing of account: What rules say: 

A Gazette notification dated 18th June, 2016 says:  

"A subscriber shall be allowed premature closure of his account or the account of a minor of whom he is the guardian on a written application to the Accounts Office on any of the following grounds namely: 

i. "that the amount is required for the treatment of serious ailments or, life-threatening diseases of the account holder, spouse or dependent children or parents on production of supporting documents from competent medical authority."

ii. "that the amount is required for higher education of the account holder or the minor account holder on production of documents and fee bills in confirmation of admission in a recognised institute of higher education in India or abroad."

The premature closure of PPF account is allowed only after the account has completed five financial years. 

PPF account interest on premature closure

The interest payable to the account holder on premature closure is 1% less than the applicable rate for the respective years for which deposits have been made. 

The Gazette notification says that the premature closure "shall be subject to deduction of such amount which shall be equivalent to one per cent less interest on the interest rates as applicable from time to time in the table payable on the deposits held in the account from the date of opening of the account till the date of such premature closure..."

For example: if the interest rate is 8% in the first five financial years of the account, you will get only 7% interest for each year upon premature closure. If the interest rate for any year is 8.7%, then you will get just 7.7% on premature closure.