Public Provident Fund or PPF is an attractive investment for many as it is government-backed and gives you tax benefits. The money invested in PPF is eligible for deduction under section 80C of the Income Tax Act, 1961. The interest earned is also exempt under section 10. Currently, the interest rate is fixed at 7.6% per annum.
It has a lock period of 15 years. After 15 years of diligently investing in PPF, what are your options when it finally matures?
During the 15 year tenure, you have to option to take a loan against it or make partial withdrawals. After the maturity you can choose to close the account and withdraw the amount or extend the account with or without making fresh deposits.
Closing your PPF Account
You can only close your account after the completion of 15 years of tenure. Now the date on which your first subscription takes place will decide the maturity date and not the date on which your account was opened.
The initial subscription date is based on the financial year. So if you open your PPF account on 3rd of May, for example, your initial subscription will happen at the end of this financial year 2018-19, which is on the 31st of March 2019. This means your account will mature 15 years after that: 1st of April, 2034.
You can simply add 15 to the year (2019 + 15 = 2034) to calculate. It always matures on the 1st of April of that financial year.
If you wish to close it, you can inform the post office and they will initiate the process for you.
Extending the PPF account
A PPF account can be extended without a fresh deposit. You do not need to inform the post office about it because if the account is not closed after maturity, it is considered extended. The account will be extended indefinitely for 5 years, and when it happens, you are not allowed to make fresh deposits. You will get the applicable interest for the next three years.
Points to note
- If you do not make any deposits within one year of maturity, you cannot do so for a total period of 5 years from the date of maturity.
- If you wish to make the fresh deposits, fill the From H and submit it to the post office within one year of maturity of the PPF.
- With Form H, fresh deposits will be eligible for interest as it will be considered "irregular" contribution. Interest earned is eligible for deduction under section 80C only if the extension is applied for.
Partial Withdrawals During PPF extension
- If you choose to opt for extension of your PPF account you have the choice to make partial withdrawals based on some conditions.
- For extension without fresh deposits, only one partial withdrawal is allowed for one financial year. It can be any amount within the limits of the balance.
- For extension with fresh deposits, one only partial withdrawal is allowed during the new 5 year term with the help of Form C. Also, the amount cannot exceed 60% of the account's credit balance at the beginning of the extended period. This amount can be withdrawn in more than one installment.
You just need to deposit a minimum of Rs 500 a year to keep the account active, which will seem beneficial if you are far from retirement. Do not forget to submit Form H for the same.