Learn The Process of PPF Account Closing
PPF (Public Provident Fund) is a long-term saving scheme that helps you save for your financial goals. You get a fixed interest rate on your deposits throughout the tenure. The government determines the interest rate quarterly, after which it is calculated and added to your deposits. The interest income is fixed, and you earn a return even if the markets turn volatile.
The PPF scheme also promises tax benefits on your investment, the returns you can earn, and the maturity amount. These benefits, along with the guaranteed returns, make PPF an attractive investment instrument.
PPF account comes with a maturity tenure of 15 years. The account runs till maturity, requiring annual contributions of at least Rs. 500. However, in some instances, subject to specified terms and conditions, you can close the PPF account before maturity. If you fulfil the terms and conditions, you can follow the PPF account closing process and close the account.
So, let’s understand the detailed requirements of PPF account closing and the process.
How to Close a PPF Account?
There are two instances when you can close your PPF Account –
- On maturity
- Before maturity
Both these instances have specific PPF account closing rules and processes. You have to understand the rules and follow the procedure for closing the account. So, let’s dive deep to explore both.
Closure Request Post Maturity
If your PPF account has reached maturity, it will be closed automatically. Therefore, you can withdraw your PPF balance hassle-free. Moreover, on maturity, you would have two options to choose from:
- Withdrawing the full amount
To withdraw the entire amount after maturity, complete Form C and submit it to the concerned bank or post office.
- Extending the tenure
PPF account comes with the extension facility wherein you can extend the maturity tenure in blocks of five years. So, on maturity, you can choose to extend the maturity tenure by another five years. After that, once the extension period is over, you can withdraw the entire amount or opt for another extension, depending on your financial needs.
Reason for Withdrawal or Closure Before Maturity
If your PPF account is up and running, i.e., it has not completed 15 years, you have two options to access your funds:
- Partial withdrawals
If you need funds and don’t want to close your PPF account, you can withdraw from the balance partially. You can start drawing partly in the seventh year of opening the account.
There is also a limit on partial withdrawals. You may withdraw an amount lower than the following:
- 50% of the balance in your account at the end of the fourth financial year.
- 50% of the balance in your account in the last financial year.
- Moreover, withdrawals are allowed only for specific reasons like medical emergencies, higher education, etc.
- Closing the account permanently
Premature PPF account closing is permitted only in certain situations. For instance, if the account holder dies, the account can be closed. Similarly, early closure of the PPF account is also allowed in the case of life-threatening diseases.
If you fulfil the specified conditions and close the account before 15 years, you will incur a penal interest. 1% interest would be deducted from your interest earning, after which the PPF balance would be paid.
PPF Account Closure Formalities for NRI
If you are an NRI, you cannot open a PPF account. However, if you opened a PPF account while you were a resident and then became an NRI, you can continue the account until maturity.
However, the day you turn an NRI, the PPF account would be closed for new investments. The balance would remain until maturity and earn the interest of a post office savings account. You cannot use the extension facility and would have to withdraw the funds on maturity. The amount will stay in the PPF account without earning any interest income if you don’t draw.
For the PPF account closing procedure, you must make a written request to the bank or post office where your account is maintained. You would have to mention your NRO (Non-Resident Ordinary) Account number, wherein the PPF balance would be credited.
Conditions When PPF Account can be Closed Before Maturity
As mentioned earlier, your PPF account can be closed before maturity only under certain conditions. PPF account closing is possible in the following situations:
- If the PPF account holder dies
- If the residential status of the account holder changes, i.e., they become an NRI
- If the account holder, their spouse or any dependent suffers a life-threatening condition
- If the account holder wants to pursue higher education and needs funds
- If the account holder’s children wish to pursue higher education and the account holder needs funds to support the same
In any of these instances, you should fill up the PPF account closing form and submit it to the bank or post office. After the form is verified, the account balance will be released.
PPF account is a long-term savings account that can create a tax-efficient and guaranteed corpus for your financial goals. Moreover, it also offers liquidity (although very limited) through partial withdrawals. However, in some situations, you can close the account before the maturity date and get the entire amount. You must be aware of the conditions under which PPF account closure is allowed and the PPF account closing process so you can withdraw the PPF balance when needed.
FAQs about Process of PPF Account Closing
If the account holder dies before the completion of five years, would closure be allowed?
If the account holder dies before five years of opening the account, closure would be allowed.
Is the amount received on closure taxable?
If you are a resident Indian, the amount that you receive on closing the PPF account would not be taxable in your hands. However, if you are an NRI, the amount received might be taxable depending on the rules of the NRO account.
If I extend the PPF account after maturity, will I have to continue the contribution?
No, contributions are not necessary if you choose to extend your PPF account. You can keep your PPF account open to earn additional interest on your deposits without contributing to the account.
Can I close the PPF account online?
No, the PPF account closing procedure is entirely offline. This means you would have to visit the bank or post office where you maintain the account and fill out the PPF account closing form to close your PPF account.
Can I open another PPF after premature closure?
Yes, you can open another PPF account if you have closed the previous one before maturity.