Post Office FD Premature Withdrawal — Rules, Penalty & Steps

You have a Post Office Fixed Deposit — officially called a Time Deposit or TD — and you need the money before it matures. Before you visit the post office, you need to know the rules. They are stricter than most bank FDs, and the 5-year TD has a restriction that catches many people off guard.

Post Office TD vs Bank FD — Why the Rules Are Different

Post Office Time Deposits are governed by the National Savings Time Deposit Rules under the Department of Economic Affairs — not by RBI guidelines that govern bank FDs. This means the penalty structure is set by the Ministry of Finance and is uniform across all post offices in India, unlike bank FDs where each bank sets its own penalty.

The key difference from most bank FDs: Post Office TDs cannot be broken at all before 6 months. Many bank FDs allow premature closure with a penalty even in the first few months. Post Office TDs do not.

Premature Withdrawal Rules by Time Period

Before 6 months — not allowed

No premature withdrawal is permitted within 6 months of the deposit date, regardless of the reason or circumstances. There are no exceptions to this rule for financial emergencies. If you need the money within 6 months of opening, a Post Office TD is the wrong instrument.

After 6 months, before 1 year — Post Office Savings rate

If you close a TD of any tenure (1, 2, 3, or 5-year) after 6 months but before completing 1 year, the interest you receive is calculated at the Post Office Savings Account rate — currently 4% p.a. — for the actual period held.

You do not receive the TD rate you signed up for. If you opened a 2-year TD at 7.0% and close it at 8 months, you get 4% for 8 months — a significant reduction.

After 1 year — 2% below TD rate (for 1, 2, and 3-year TDs)

If you close a 1-year, 2-year, or 3-year TD after completing 1 year, the interest is calculated as follows:

• For the completed full years: the applicable TD rate minus 2%
• For any remaining part period under 1 year: Post Office Savings Account rate (4%)

Example: You opened a 3-year TD at 7.1% and close it after 2 years and 4 months.

• For the 2 completed years: you receive 7.1% − 2% = 5.1%
• For the remaining 4 months: you receive 4% (Savings rate)

Any interest already paid out on the deposit is adjusted against the final amount at closure.

5-year TD — cannot be broken before 4 years

This is the rule most people do not know: a 5-year Post Office Time Deposit cannot be closed before completing 4 years. There is no option for premature closure in the first 4 years, regardless of circumstances. This is a structural restriction under SB Order No. 22/2023, not just a penalty.

If you close the 5-year TD after completing 4 years (but before the full 5 years), the interest is paid at the Post Office Savings Account rate for the entire period held — not the 5-year TD rate, and not a 2% reduction. The full TD rate is forfeited.

This makes the 5-year TD the most restrictive of the four tenures. If you may need the money before 4 years, open a shorter-tenure TD instead.

Premature Withdrawal Penalty Summary Table

Current Post Office TD Interest Rates (Q1 FY 2026-27)

Interest is compounded quarterly but paid annually. The Post Office Savings Account rate (applicable on premature withdrawal within 6–12 months or on the 5-year TD after 4 years) is currently 4% p.a.

How to Close a Post Office TD Before Maturity

Step 1 — Visit the post office where the TD is held. Premature closure must be processed at the branch where the account was opened, not at any branch. Carry your original TD passbook and photo ID (Aadhaar, PAN, or passport).

Step 2 — Request the premature closure form. Ask the counter staff for the TD premature withdrawal application form. Fill it with your account details, the reason for closure, and the bank account details for credit.

Step 3 — Submit the form and original passbook. The post office staff will verify the deposit details, calculate the applicable interest based on the time held, and process the closure.

Step 4 — Receive the amount. The principal plus reduced interest (as per the rules above) is credited to your post office savings account or paid by cheque. Any excess interest already paid out will be adjusted and recovered from the final amount.

Can it be done online?

Post Office TD premature closure can be initiated online through the India Post internet banking portal (ebanking.indiapost.gov.in) if your account is linked to internet banking. Log in, go to General Services → Service Request → New Request and look for the TD closure option. If your account is not set up for online banking, a branch visit is required.

Tax on Premature Withdrawal

The interest received on premature closure is fully taxable as income from other sources at your applicable slab rate. TDS at 10% is deducted if your total Post Office interest in a financial year exceeds ₹50,000 (₹1,00,000 for senior citizens), provided your PAN is registered. Submit Form 15G (below 60 years) or Form 15H (60 and above) to avoid TDS if your total income is below the taxable threshold.

For the 5-year TD specifically: if you invested under Section 80C and then close prematurely, the 80C deduction you claimed may be reversed — consult a tax advisor for your specific situation.

Alternatives to Breaking Your Post Office TD

Before closing your TD early, consider these options:

• Loan against TD: You can pledge your Post Office TD as security for a loan from a bank, typically up to 90% of the deposit value. This lets you access funds without breaking the deposit and losing interest.
• Transfer the TD: If you have moved cities, you can transfer the TD to any post office across India — you do not need to close it.

For a comparison of premature withdrawal rules across bank FDs — which generally allow closure at any time with a 0.5–1% penalty — read our bank FD premature withdrawal guide. For tracking your Post Office TD maturity dates and getting reminders before they expire, Savings Reminder lets you add each TD individually without requiring any post office login.

Frequently Asked Questions