Govt allows premature closure of PPF account after 5 years

The government on Monday clarified that subscribers of the public provident fund (PPF) can prematurely close the deposit scheme after completing five years for meeting expenses towards medical treatment or higher education.

In a notification dated June 18, North Block has introduced an amendment to the Public Provident Fund Scheme 1968 allowing subscribers to prematurely close their accounts after the completion of five years on account of higher education or medical expenditure.

''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 on production of supporting documents from competent medical authority,'' the ministry stated as clarification on rules for premature closure of PPF accounts.

PPF has a tenure of 15 years. Till now, the scheme did not allow premature withdrawal except in case of deaths. Requests for premature closure and refund of deposits on grounds of genuine hardship were dealt with under Rule 13, which allowed the government to relax the provisions under the scheme.

Premature closure would also be allowed for accountholders in need of funds for higher education of the subscriber or minor accountholder following the production of documents and fee bills confirming admission in a recognised institution in India or abroad, it added.

However, the subscriber will receive a lower interest rate in case of premature closure.

"Premature closure shall be subject to deduction equivalent to one per cent less interest on the interest rates applicable from time to time payable on deposits held in the account from the date of opening till the date of such premature closure," the notification said.

For PPF, the amount received on premature closure is exempt from tax. However, for Employees' Provident Fund, tax will be deducted at source on withdrawal before the completion of five years of service.

Meanwhile, the government has decided to leave interest rates on various saving schemes unchanged for the July-October quarter of 2016-17 fiscal.

The finance ministry in a statement said that interest rate on one-year deposits for July-October quarter of this fiscal has been kept unchanged at 7.1 per cent. Interest rate on two-year time deposit, three-year time deposit and five-year time deposit were kept at 7.2 per cent, 7.4 per cent and 7.9 per cent, respectively.

Likewise, interest rate on PPF scheme, Kisan Vikas Patra scheme and Sukanya Samriddhi Account Scheme were kept at 8.1 per cent, 7.8 per cent and 8.6 per cent respectively. In February this year, the ministry had announced that small savings rate will be set quarterly to align them with market rate of government securities.