Is there any rule for breaking the 15-year lock-in period in PPF? Half of India is unaware of this rule

Public Provident Fund i.e. PPF is one of the most popular and trusted investment schemes in India. Due to tax exemption, attractive interest rate and government protection, people invest in it for a long term. The lock-in period of PPF is 15 years and it is believed that it is not possible to withdraw money before this. But what if you are in dire need of money before maturity? Is there any way to close the PPF account before 15 years? Most people are unaware of this rule.

Know what is the rule in this case?

Can PPF be closed before 15 years, the answer is – yes, absolutely! The government has allowed premature closure of PPF account under certain special circumstances. But you cannot close it at your own will. For this you have to follow some rules and conditions.

1. The account must be 5 years old

The first and most important condition is that your PPF account must have completed at least 5 financial years. The point to note here is that these 5 years are not counted from the date of opening the account, but from the end of the financial year in which the account was opened.

Understand with an example

If you have opened your account on 1 July 2020, then the first financial year will end on 31 March 2021. According to this, you can apply to close the account only after 1 April 2026.

2. You can close it only for these 3 special reasons

Even after completion of 5 years, you can close the account only on the basis of any one of the three reasons given below. You will also have to provide solid proof of this.

Treatment of life-threatening disease

If the account holder, his/her spouse or dependent children suffer from any life-threatening disease, the account can be closed for the expenses of their treatment. For this, you will have to submit a medical report issued by the concerned doctor or hospital.

Higher Education

If the account holder or his/her dependent children need money for higher education in a recognized institute in India or abroad, then the PPF account can be closed. For this, you will have to provide documents like admission confirmation letter and fee receipt.

Changing the status of residence (becoming an NRI)

If the account holder has permanently settled in another country and his citizenship or residence status has changed to NRI (Non-Resident Indian), then he can close his account. For this, passport, visa or citizenship related documents will have to be shown.

The biggest question: How much money will be deducted?
Even if you fulfill the above conditions, you have to keep one thing in mind that if you close the account prematurely, you lose interest. According to the rule, from the date of opening the account to the date of closing the account, a deduction (penalty) of 1% will be made on the interest you get.

Understand with an example

Suppose you deposited Rs 1 lakh every year in PPF for 6 years and during that time the interest rate was 7.1%. Now you want to close the account for higher education at the end of the sixth year. Simple interest without penalty (7.1%): If you do not withdraw the money, then your total investment and interest in 6 years would be around ₹ 7,97,000. Interest with 1% penalty (6.1%): On premature closure, your interest rate will be considered 6.1% instead of 7.1% for every year. According to this, you will get around ₹ 7,75,000. This means, you will get less interest of about ₹ 22,000. This 1% penalty is applicable on the interest of your entire deposit period, not just the interest of the last year, so this loss can be big.

Process to close PPF account prematurely (Step-by-Step Guide)

• Go to your bank branch or post office and ask for the PPF premature closure form. Fill it carefully and clearly write the reason for closing the account.
• Attach self-attested copies of all the necessary documents related to the reason (medical report, admission letter, copy of passport/visa) with the form.
• You will also have to submit your original PPF passbook along with the application.
• Submit the form and documents to the concerned officer. After your application is verified, your PPF account will be closed and all the money will be transferred to your savings account. This may take a few weeks.