News Update : Premature Closure of PPF Account Allowed After 5 Years – Conditions Apply*
In a latest news about PPF Account, the Finance Minister Mr. Arun Jaitly on June 18, 2016 in a notification said, that the PPF Account Premature Withdrawal (Closure) of the account is now possible but subject to conditions stated.
Premature Closure of PPF Account Allowed after 5 Years
What does this mean to users who are having PPF Account?
Well, the PPF Account holders who are having PPF Account in good standing, i.e who have no dues in terms of late payment and regular account depositors can follow the rule – PPF Premature Withdrawal Allowed, provided the account holder has completed a duration of 5 years since starting the PPF Account. This means that for the question IS PRECLOSURE OF PPF ALLOWED the answer is YES
PPF Account Preclosure Rules after 5 years
The preclosure rules set by Finance Minister are as follows : – According to the Finance Ministry notification, ‘A subscriber shall be allowed premature closure of his account or account of a minor of whom he is the guardian on ground that amount is required for treatment of serious ailments or life-threatening diseases of the account holder, spouse or dependent children.’ and if there is ‘requirement for higher education of the account holder or the minor account holder in confirmation of admission in a recognised institution in India or abroad.’
Therefore – According to the Public Provident Fund – Amendment Scheme – 2016, any account holder of PPF can now withdraw money from their PPF account after it has completed atleast five years, to pay for medical treatment or for the purpose of higher education.
Documents Required for Preclosure of PPF Account
In 0rder for the money to be released, in case of ailments, the applicant has to provide supporting documents from competent medical authority detailing the ailment. When it comes to education, papers pertaining to confirmation of admission and fee bills should be provided as the supporting document.
Preclosure Rules for Percentage Calculation
If a user is planning to withdraw money / close the ppf account then the rules such as 1% deduction from the PPF Account will be applied. This means that, if a user has opened a PPF Account and let’s say the Interest Rate for the 5 full Financial Years were at 8.7% then the new interest rate calculated at the time with Preclosure of PPF Account be 7.7% i,e 1% deductions would be applied to the PPF Account and the Interest would be calculated for the new interest rate (7.7%) for all the five years and at the time of closure, the amount will be fully returned to the user @ 7.7% interest rate.
Pre Closure of PPF Account
Earlier ppf account preclosure or premature closure of ppf was possible under two reasons, if the ppf account holder died or if the ppf account holder was not traceable (missing) from the society – for more than seven years, then the closure of ppf account was possible. Secondly the closure of ppf account during extended period or closure of ppf account on maturity was possible by submitting the relevant document and in turn claiming the money invested in PPF Account. With the recent addition of medical and higher education system there is a third option to preclose the ppf account.
PPF Closure Rules
To summarize the PPF Closure Rules there are three options available
- Death of the Account Holder
- Account Holder missing from the society for more than 7 years after police complaint and newspaper missing advert.
- Medical / Higher education related requirement closure allowed at the start of 6th year.
PPF Account Preclosure Example
If you want to better understand the workflow of how the account closure happens, consider a case, wherein a user opens a ppf account on 1st April 2016 and invests 150000 INR every year with the interest rates remains to be 8.1% every year for the next 10 years then the math is shown below.
PPF Account without Preclosure
When the user deposits 150000 INR for 10 years with a investment of 1500000 INR the user earns 2360180.41 INR
PPF Account with Preclosure
When the same user deposits 150000 INR for 10 years with an investment of 1500000 INR the user earns 2230123.98 INR
So, by the above example, we see that even though the interest rate is reduced by 1% the total loss in interest earned + investment made is 5.4% and this percentage loss increases as the no. of years increases. But in case of emergency this loss does not matter much as saved money becomes of greater use during medical expense or during higher education requirement for your own son or daughter.
However, on the outset, try to make withdrawal from PPF Account as far as possible rather than closing the ppf account. Try taking loan from a bank or from your friends and then repay them the next year from your PPF Account. Sounds strange but sounds safe to any user.