A Public Provident Fund (PPF) account is a very popular account in India. It is not only a savings scheme but also a tax-saving instrument that has been a favorite for generations of Indians.
Not only is it a savings scheme, but also an investment scheme that will give you reasonable returns within a safe framework.
So, you don’t have to worry about the principal amount you have invested as you can be sure that it will be invested in wisely and will give you a good RoI over the years.
There are certain basic things to know about your PPF account if you are considering extending its duration beyond its maturity period. As you will very well know, every PPF account reaches it maturity period 15 years after it has been opened.
This is 15 years from the end of the year in which you made the initial subscription. This means that if you opened your account in January 2000, it would have matured in March 2015. The amount can be withdrawn any time after April 2015.
After maturity, you have many options in front of you: to withdraw the entire amount, withdraw a partial amount, extend the account without making any contributions, or extend the account with regular contributions.
Extending your PPF after maturity
The PPF rules state that after the maturity period of 15 years, you can extend your PPF account in blocks of 5-year durations.
There is no compulsion to continue making contributions during these 5-year periods although you are free to make withdrawals. The amount that you have as balance in your PPF account will continue to accrue the compounding interest as well as give you considerable tax benefits under Section 80C of the Income Tax Act.
For more information about PPF Tax Benefits and Features click here.
Extending PPF account with contributions
If you want to extend your PPF account with contributions past the maturity period, you would first have to submit the Form H to your post office or bank. The minimal contribution, just like when you started, is Rs.500.
Please note that if you do not submit the Form H, our PPF account fresh deposits will not accrue interest nor will you receive any tax exemptions.
You only have to submit Form H for the first extension period. This means that if you want to extend it for another block of 5 years, after the first extension block of 5 years is over, you don’t need to submit Form H.
Your deposit amount and fresh contributions will attract interest as well as will be considered for tax exemptions.
You can withdraw up to 60% of the balance which was there in the account at the start of the extension period. This withdrawal can be made only once per year but at any time of the year.
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Extending PPF account without fresh contributions
You can choose to extend your PPF account without any fresh contributions. For this, there is no need to submit a separate form to the bank or post office. The balance amount that you have will continue to accrue interest as per the government rates.
When withdrawing under this option, there is no limit to how much you can withdraw but only one partial withdrawal is allowed per year.
If you want to extend your PPF account after the maturity period, you will have to inform your post office or bank within a year of the maturity that it has to be extended.
After a year of maturity, you have to decide whether to extend the account or to withdraw the entire balance amount.
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Deciding whether to extend or close your PPF account after maturity
Deciding whether to close or extend your PPF account after maturity is a personal decision based on your financial obligations and requirements.
If you have any big expenses, such as education or marriage of a child or any personal dreams such as traveling the world, then a complete withdrawal of funds may be in order.
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However, if no such expenses are on the horizon, then extending your PPF account would be a better deal as you get tax savings as well as a good interest on your money with the corpus amount remaining safe through the years.
Tax-free compounding will also benefit those who have only a few more years left to retire as they can then use the amount that is accrued after the extension to live a carefree life after retirement.
Either way you look at it, opening or extending a PPF account has long-term benefits.
If you have not opened a PPF account yet, now may be the best time to do so, even if you think it is late in the day because it is always better late than never when it comes to financial management.