PPF Lock In Period

The government is contemplating adding two more years to the lock-in period for PPF especially for tenures that stretch to twenty years. Individuals who invest in PPF can withdraw their money after eight years. Currently, the lock-in period lasts for six years. The tenure of PPF is also expected to be increased by 5 years to 20 years.

Customers can choose their saving period and the term can be either 15 years or 20 years. The government plans to bring in an increasing number of people by increasing the rate of interest for tenures that extend to 20 years. In case the customer wishes to invest in PPF for 20 years, the tax benefits that follow are expected to be higher. The government is evaluating this decision so that it can make sure that infrastructure funding can have a steady source.

Reserve Bank of India has announced that fixed deposits with high values and resilience will start earning higher rates of interest shortly. People who deposit money and store it with banks generate differential interest rates depending upon the amount of money they have deposited – whether it is less than or more than Rs. 1,00,00,000. The rate of interest tends to be more if the period is longer. Moreover, deposits under Rs. 1,00,00,000 may be taken out prematurely, causing a mismatch between the assets and liabilities.

What has changed in the PPF lock-in period?

After the completion of 5 years, you’re allowed to close the PPF account and withdraw all the money, because 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.

Similarly, 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.

Is There a Penalty for This Facility?

The government will allow premature closure after deducting interest @ 1% for the entire holding period. 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.

Is there a penalty for this facility?

The government will allow premature closure after deducting interest @ 1% for the entire holding period. 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.

About PPF

Public provident fund (PPF) is an investment avenue considered by millions of Indian investors since it qualifies for deduction under section 80C of the income tax act and maturity proceeds are tax-free. PPF enjoys an exempt-exempt-exempt (EEE) tax status. Investments can be done in the most public sector and select private banks, as well as in post offices.

Public Provident Fund has a specified lock-in-period. This means the account holders can’t withdraw funds from their account before the completion of such lock-in period. While currently the lock-in period is 6 years, it is expected to go up by 5 to 20 years shortly.

FAQs: PPF Lock-in Period