Due to its guaranteed returns and EEE (exempt-exempt-exempt) tax status, the Public Provident Fund (PPF) is among the most attractive investment alternatives. Many people open PPF accounts with their bank or post office to develop a large retirement corpus because of the tax benefits and online account opening procedure with minimum documents requirements. When it comes to the EEE aspect of PPF, it offers a tax deduction for the amount contributed up to Rs 1.5 lakh per year under section 80C. Interest generated is tax-free, and the amount received on account maturity and withdrawals are tax-free as well. PPF is well known for long-term investment due to its lock-in period of 15 years. When the account matures, the depositor or contributor has the choice of choosing one of the following options:
Withdrawal from PPF account upon maturity
Generally, you can withdraw the whole amount from a PPF account only after the account reaches maturity, which is after 15 years. After 15 years, your entire balance in the PPF account, including accumulated interest, can be withdrawn and the account can be closed respectively. That being said, if you want to withdraw earlier than 15 years, the scheme allows partial withdrawals after completing 6 years of continuous service as PPF holder. You must submit a completely filled Form C to the bank branch or post office where you maintain your PPF account in order to withdraw funds prematurely.
Following that, the PPF will be discontinued, and the funds will be credited to your registered bank account within 7 working days. Partial/premature withdrawals from the PPF account are completely exempted from tax, however, only one partial withdrawal is permitted every financial year. A penalty is imposed at a rate of 1% cut in the relevant interest rate for the duration the account remains open. However, if you want to get the most out of your PPF, you should keep it open until your retirement. This strategy will allow you to create a huge retirement corpus due to the compounding factor of PPF.
Extension of PPF account upon maturity without contributions
When your PPF account reaches maturity, you have the choice of withdrawing the whole balance or extending the account's term in a 5-year block. PPF extension without contributions implies you keep your PPF account open after it matures, but don't make any further or subsequent contributions. Until you withdraw the whole amount, your total corpus will continue to generate interest. You can only make one withdrawal from the account at the time of the extension after you've extended it for a block of five years. In addition, each year just one withdrawal is permitted. If you do not notify the bank or post office regarding your decision after 15 years, this will be the standard setting for your PPF account.
Extension of PPF account upon maturity with contributions
You can keep your PPF account open and make further contributions to it after it achieves maturity. This is only feasible if you submit Form H at your concerned bank or post office within one year of the account's initial maturity date to extend your PPF account. If you don't file Form H, you won't be able to make subsequent contributions and any such contributions will be considered irregular and will not generate interest or qualify for a Section 80C tax deduction.
You can only withdraw 60% of the account at the time of extension throughout the subsequent 5-year term after the account has been extended with contributions. You are also limited to one withdrawal each year. According to the application of the guardian, an account established on behalf of a minor or a person of unsound mind can be extended. If the account holder does not provide his choice to continue the account within one year of the maturity date, no contributions can be made. Any contribution made in such an account will be considered irregular and the account holder will be refunded without interest by the concerned bank or post office.
Up to the end of the month before the month of closure, the balance in the account on the date of maturity will continue to accrue interest. If the account has been maintained with contributions for one or more five-block durations, you can quit or terminate the account without deposits at the end of any block period, and the account will continue to earn interest until it is closed. After providing your choice for a five-year extension of the account, you will not be able to cancel your request at a later date, according to the Department of Post.