Rewind your life about 15 years and go back to the day when you opened the Public Provident Fund (PPF) account. For 15 long years of diligently investing in the scheme and reaping the benefit of compounding, it is time for your PPF account to mature.
Although PPF has a lock-in period of 15 years you have the option to take a loan against it or make partial withdrawals during its tenure. But what about when it matures? What options do you have if you want to continue with your PPF account?
Here are three alternatives to proceed with the PPF account once it matures:
a) Close the account and withdraw entire proceeds
b) Extend the account without fresh deposits
c) Extend the account with fresh deposits
Close the account and withdraw entire proceeds: A PPF account can be closed only on the expiry of 15 years from the end of the year in which the initial subscription was made into the account. The date of opening the PPF account, therefore, will not determine its maturity date. If the account is opened on May 18, 2002, its mature on April 1, 2018. This is because the end of the year when the account was opened will be March 31, 2003. To close, one has to intimate the Account Office (post office) and the entire balance standing at the credit will be paid.
You have the option of extending your PPF account after it matures. You can extend it indefinitely in a block of five years. During the extended period, you don’t necessarily have to make fresh deposits and you can even make partial withdrawals, however, there are rules governing the same.
Extend the account without fresh deposits: To continue PPF account without fresh deposits, one need not intimate the Account Office for such an extension as it will be automatically considered as extended. But, remember, no fresh contribution will be allowed thereafter. The balance will keep earning the applicable interest for the next 5 years.
You will be allowed to make only one partial withdrawal in each financial year during the extended period. The subscriber can make one withdrawal in each financial year of any amount within the balance. Once the account is continued without deposits, for more than a year, the subscriber cannot opt again to continue the account with deposits for a block period of 5 years.
Extend the account with contribution: If you want to extend the account and even keep making fresh deposits, the Account Office has to be intimated before the expiry of one year in writing by filing up the Form H. If one keeps depositing without furnishing this Form, then all new deposits will be treated as irregular and no interest will be paid on them. The benefits of Section 80 C of Income Tax Act will not be available on deposits made in PPF account after expiry of 15 years without exercising option for continuance of the account.
Once continued with fresh deposits, the future extensions may be without fresh contributions, where the account will keep earning interest.
Partial withdrawals during extension period
If someone has opted for extension of the account without contribution, one can make one withdrawal in each financial year of any amount within the balance. The balance continues to earn interest.
But, if one has opted for extension of the account with contribution, then during the extension period, only one partial withdrawal is allowed by applying through Form C, subject to the condition that the total of the withdrawals, during the 5 year block period, shall not exceed 60 percent of the balance at the credit at the commencement of the extended period.
This amount can be withdrawn either in one instalment (one year) and or more than one instalment in different years as per your requirements. Similarly, during the second block period of 5 years, the subscriber can withdraw 60 percent of the whole amount at credit at the commencement of the second block period either in one year or in different years not exceeding one withdrawal a year. This limit of withdrawal will apply on commencement of every extension of block period of 5 years.
What you should do
If the maturity of the PPF account is not close to your retirement age, then it’s better to extend the account. So, for someone who opens the PPF account at age, say 30, it can be extended 3 times till age 60 and beyond. It’s better to submit Form H and then extend as it takes a minimum of Rs 500 a year to keep the account inactive. Even though, 40 percent of your corpus will remain locked-in till the end of 5 years, you always have the option to make partial withdrawals and still reap the benefit of compounding on the balance.