If you have a Public Provident Fund (PPF) account, there’s some news for you. You can now close your account after 5 years. Yes, you read it right. You can completely withdraw the balance in your PPF account any time after 5 years, if you satisfy a few conditions. Recently, the Government amended Public Provident Fund Scheme, 1968, relaxing the provisions of premature withdrawals with an immediate effect.
Until now, you were allowed to withdraw only after the expiry of 5 full financial years from the end of the year in which your initial subscription was made, but the withdrawal was limited to 50% of the balance at credit at the end of fourth year, immediately preceding the year in which the amount is to be withdrawn or the balance at the end of the preceding year, whichever is lower, as per the PPF rulebook. Thereafter, you were allowed one withdrawal per year. So for example, if you were to open a PPF account on April 1, 2006, you were allowed first withdrawal after April 1, 2012, and the amount of withdrawal was limited to 50% of the balance as on - March 31, 2008, or the balance as on - March 31, 2011, whichever is lower; subject to loan taken on your PPF account.
What has changed?
Now after the expiry of 5 years, you’re allowed to close the PPF account and withdraw all the money, on the grounds that the amount is required for treatment of serious ailments or life-threatening diseases that you, your spouse, dependent children or parents may suffer. However, to be able to do so, you have to produce the documents supporting this claim signed by a competent medical authority.
Likewise, if you need money to fund your children’s higher education in India or even abroad, the Government has relaxed premature withdrawal norms. But here too, proofs such as fee bills and other documents confirming the admission in a recognised institute are required. It is noteworthy that, the wording of Government notification is silent about you withdrawing money from your account for the children’s higher education. However, if the account holder is a minor, you as his/her guardian, can withdraw money for his/her higher education.
But this facility comes with a penalty...
The Government will allow premature closure after deducting interest @ 1% for the entire holding period. To be fair, the Government has stated it will be assumed that the applicable rate of interest on such accounts was 1% lower for each year than the applicable rates. Therefore, instead of deducting 1% flat at the closure, the calculation will be done backwards for each year, to arrive at the amount that is to be deducted from the accumulated funds in the account.
Admittedly, this is nearly impossible to understand without any illustration. Suppose you open a PPF account in your name on April 1, 2006 and religiously deposited Rs 12,000 in first 5 days of every financial year. Now if you plan to close your account on March 31, 2016, the full and final settlement of your account would be done in the following manner.
So in the above case, a sum of Rs 1,82,248 will be payable to you. The following table shows you how your account would have otherwise worked had you continued.
Content Originally Published on PersonalFN