Public Provident Fund: Premature & Partial Withdrawal Rules Explained

When it comes to investing in secure investments for consistent returns, investing in a debt product is always suggested. Government, corporate, municipal funds, fixed deposits, tax-saving fixed deposits, small saving schemes are examples of debt investments that are highly considered by equity investors when the stock markets are high. The sole and main advantage of investing in debt assets is that you will receive lower but more consistent returns than you would from stocks or mutual funds.

While we're on the subject of debt investments, we'd like to remind you that the Public Provident Fund (PPF) is a government-backed scheme that might be a good fit for long-term investors with low-risk tolerance. After the Sukanya Samriddhi Account and Senior Citizens Savings Scheme, it is the only product under small savings schemes which not only have a long maturity period of 15 years but also offers an interest rate of 7.1% (for the quarter ending in September 2021) and comes with EEE(exempt exempt exempt) status. With a long maturity period, a PPF account also allows investors to make a withdrawal any time after the completion of five years of account opening. But to know about the premature and partial withdrawal rules of PPF account, let's discuss in brief below.

PPF Account Withdrawal Rules

The account holder can withdraw an amount not surpassing 50 percent of the amount that remained to his or her account at the end of the fourth year preceding the year of withdrawal or at the end of the preceding year, whichever is lower, at any time after the account has been open for five years by applying in Form-2 and submitting it the concerned post office or bank with account passbook.

Before making the withdrawal, the account holder must pay off all outstanding loans, including interest, if any, according to the rules stated under Public Provident Fund Rules 2019. The withdrawal can only be made once a year and only from accounts that have not been closed or terminated. In the case of an account established on behalf of a minor or a person of unsound mind, the guardian can request for a withdrawal at the post office or bank where the account is maintained.

Closure or continuation of PPF accounts without deposits after maturity

The account holder can close his or her account at any time after fifteen years from the end of the year in which the account was opened by submitting a Form-3 to the concerned post office or bank. Prior to the end day of the month before the month in which the account is terminated, the post office or bank where the account was opened would facilitate withdrawal of the whole balance plus interest.

The subscriber can maintain his or her account once it matures without making any new deposits for as long as he or she wants, and the account will continue to generate interest at the prevailing interest rate of that year or quarter. Any amount or balance in the account can be withdrawn once per year by the account holder. Once an account has been kept without contributions for more than a year, the account holder will no longer be able to maintain it with further contributions.

Premature closure of PPF account

Premature closure of an account holder's account or the account of a minor or person of unsound mind for whom he or she is the guardian is permissible under Public Provident Fund Rules 2019. For making a premature withdrawal the account holder has to file Form 5 and submit it along with the required documents at the responsible bank or post office. The account holder should bear in mind, however, that withdrawals can only be made for the treatment of a serious illness that strikes him, his spouse, or dependent children or parents.

Withdrawals can also be made for the account holder's further education, dependent children, or a change in residence status. For withdrawal made for the treatment of a disease documents such as medical reports are necessary, and for higher education school fee bills or admission letter is required to make a withdrawal, whereas to make a withdrawal, the account holder must submit a copy of his or her passport and visa, as well as a copy of his or her income tax return if his or her resident status has changed.