Public Provident Fund (PPF) continues to be one of the most preferred tax efficient savings products in India to build a retirement corpus. PPF investments of up to Rs1,50,000 (per financial year) are eligible for tax deduction under Section 80C, and the amount received on maturity is tax-exempted. The interest earned is also tax-free. Thus it is one investment vehicle, which enjoys the EEE (exempt-exempt-exempt) status. Moreover the returns are guaranteed and risk-free.
PPF accounts have a lock-in period of 15 years but many people are unaware that it can be extended (with or without fresh contributions) indefinitely (in five year blocks) at the end of the maturity period. Upon completion of 15 years, the entire amount standing to the credit of an account holder in the PPF account along with the accrued interest can be withdrawn freely (by submitting Form C) and the account can be closed. However, financial planners recommend that you continue renewing your PPF account in blocks of five years for the magic of compounding to continue. There is no limit on the number of times you can extend.
If your retirement is far away, then you can opt to continue the PPF account with fresh contribution so as to continue building your corpus while enjoying tax benefits.
It is a better idea to submit Form H and extend the account for five more years since it takes just a minimum credit of Rs500 every year to keep the PPF account active. Although, 40% of your corpus remains locked-in till the end of five years, you always have the option to go for partial withdrawals and still reap the benefit of compounding on the account balance.
Here we share details about extending your PPF account on maturity.
After completing 15 years, the account holder has to inform the post office or bank within one year whether he/she plans to continue with deposits or not. In case the account holder fails to inform the post office or bank within the one-year time span, the account holder will have to either withdraw the full balance or extend his/ her PPF account without fresh contributions.
Extending PPF account without fresh contributions:
In case you decide to retain your PPF account after maturity without making any new contributions, then you do not have to inform the post office or bank by submitting any form. The account balance will continue earning interests until the day you close it.
Partial withdrawals: You are allowed to make one withdrawal once every financial year. There is no limit on the amount you can withdraw. The remaining balance in the account will continue to earn interest. It should be noted that only one withdrawal is allowed every financial year.
Extending PPF account with fresh contributions:
The account holder needs to intimate the post office or the bank that they wish to continue their PPF account with fresh contributions by submitting a Form H. In case this Form H is not submitted by the account holder, the PPF account will be treated as irregular and no interest will be paid on the fresh contributions. If the form is not submitted and yet contributions are made then no tax benefit under section 80C (of the Income Tax Act) will be available for the account holder.
Partial withdrawals: In case the account holder decides to continue his account with fresh subscriptions, then he/ she can withdraw up to 60% of the account balance at the beginning of each extended period (block of five years) in one or more installments, but only one withdrawal is allowed per year.
E.g. Let us assume that your PPF account is ending on 31 March 2021. The balance at that time in your account is let’s say Rs 45 lakhs. Now, you could either opt to continue the account for five more years (i.e. till 31 March 2026) and continue to invest regularly or you can withdraw only Rs 27 lakhs (over those five years, but only one withdrawal is allowed every year) which is 60% of 45 lakhs (which is your account balance as on 31 March 2021 when you are commencing the five year extension). Account holder needs to submit Form C for partial withdrawal.