(1) The premature withdrawal of a Time Deposit can be allowed six months after opening of account. If account is closed between 6 months and 1 year, interest at the rate of Savings Account fixed from time to time shall be eligible.
(2) Premature withdrawal of a deposit after the expiry of one year in case of 2-year, 3-year and 5-year account will be regulated under the provisions of rule 8 of Post Office Time Deposit Rules, 1981, on reduced interest. In such cases, the amount of deposit shall be repaid with interest as under:-
a) The rate of interest on such deposit shall be payable to the depositor for the completed years and months from the date of deposit to the date of closure and such interest shall be one (1) per cent less than the rate specified for a deposit of 1-year, 2-years or 3-years, as the case may be, in the concerned Tables under Rule 7 of POTD Rules, 1981.
b) In respect of 5-year account, if the completed years and months exceed 3-years, the interest payable shall be one(1) per cent less than the rate specified for a deposit of 3-years in the concerned Table under Rule 7 ibid.
c) The amount of interest already paid on the deposit at the higher rate shall be set off against the principal and the interest payable under this rule and only the net balance shall be payable on such premature closure of the account.
(3) The premature withdrawal of Time Deposit can be allowed in the normal course on presentation of application for Closure of Account (SB7A) by the depositor. No separate sanction for this purpose will be issued. The Head Post Offices and Departmental Sub Post Offices will be competent to allow premature closure of a Time Deposit accounts as in the case of final closure of the account. Procedure laid down for closure of TD Account should be applied for pre-mature closure also.
Source : POSB manual