Points To Note Before Dipping Into Ppf Prematurely

Under the ‘exempt, exempt, exempt’ structure, your contributions into PPF are eligible for deduction under section 80C of the IT Act. The interest earned on these contributions and the maturity amount too are tax-exempt. PPF comes with a minimum lock-in of 15 years, thereby ensuring that your contributions compound and grow into a sizeable corpus over time. So, dip into your PPF corpus only if it is absolutely necessary to do so and if you have exhausted all other options.

So, what are the rules relating to premature withdrawal from or closure of PPF?

A PPF account matures after 15 years from the year of account opening. You can make premature partial withdrawals or close the account prematurely – any time after five years from the end of the financial year in which the account was opened. Suppose you opened a PPF account in January 2018, that is, in FY 2018. Then, you can prematurely withdraw from or close your account only after five years from the end of FY 2018 (31 March 2018), that is, from FY23 (after 31 March 2022).

Premature withdrawal

While a premature withdrawal, unlike an account closure, can be done for any reason, there is a limit to such withdrawals. Your withdrawal amount cannot exceed the lower of the two – fifty per cent of the balance in your PPF account at the end of the fourth year preceding the year of withdrawal or at the end of the immediately preceding year. Also, a withdrawal can be made only once in a financial year. So, for example, if you want to make a withdrawal in August 2022 (FY 2023), then the maximum that you can withdraw is 50 per cent of the lower of the account balance as of 31 March 2019 and 31 March 2022.

Premature closure

Unlike a premature withdrawal, a premature closure is allowed only for specific reasons such as treatment of life-threatening disease for the account holder, spouse or dependent children or parents. Expenses on higher education of the account holder, or dependent children in a recognised institute of higher education or change in the residency status of the account holder. Such request has to be backed by supporting documents.

In case of premature closure, your account will earn one percentage point lower than the applicable rate. The lower rate will apply for the entire period – from the account opening date till the closure date. Partial withdrawals or a full withdrawal on premature account closure are not taxed.