PPF (Public Provident Fund) is one of the most popular long-term savings schemes among Indians, especially due to the EEE (exempt-exempt-exempt) tax benefit that it comes with. However, in order to keep the account active till its maturity (15 years), one needs to deposit a minimum of Rs 500 (maximum of Rs 1.5 lakh) every financial year (1 April to 31 March).
There could be instances where you were unable to deposit the minimal amount in a particular year to your PPF account for whatever reason and if you fail to make the contribution even in the subsequent financial year, the account will be treated as discontinued.
What happens when your PPF account is discontinued?
- The amount in the PPF account will only be received by the subscriber on completion of the maturity period along with the interest earned each year (based on the rate fixed by the government).
- The facility to close the account before maturity after completion of 5 years cannot be availed for a discontinued account. Note that the government allows premature closure of an active PPF account after completion of five years for special circumstances like a child's higher education and treatment of life-threatening diseases, subject to a lower interest rate.
- The option to take a loan against the balance in the account after the third financial year up till the end of the sixth year, will not be available on an inactive PPF account.
- Certain partial withdrawals that can be made from an active account from the seventh year onwards till maturity, cannot be done by a discontinued account.
- A discontinued account can be reactivated anytime before reaching the expiry date, as mentioned in the passbook.
- An alternate PPF account will not be allowed to be opened, you will have to revive the existing discontinued account.
How to reactivate the discontinued PPF account?
The subscriber will have to submit a written application at the bank branch or post office where the PPF was opened, to revive the account. In addition, he/she will have to pay a penalty of Rs 50 for every year of default, along with Rs 500 per year of minimum deposit requirement for those years and Rs 500 for the year in which the account is being revived.
Why you should consider reviving your PPF account?
You may have invested in different options like equity, mutual funds, etc but this government-backed savings scheme is your opportunity to make small yearly deposits towards a long-term goal. Not only does PPF allow your money to be multiplied through the power of compounding, but it will also give you promised returns at the end of the maturity. You can also enjoy the benefit of tax exemption on deposits made, interest earned and withdrawal on maturity, which is not available on many other options.
Besides, even if you fail to make the minimum required payment for the year, you will be able to do so at any given point before the maturity with a minimal penalty of Rs 50 and you will not lose your money like in the case of a traditional insurance policy.