PPF account maturity: A look at options

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Public Provident Fund (PPF) is a very safe and government-guaranteed investment scheme. It allows a maximum annual investment of Rs 1.5 lakh, is completely tax-free and has a lock in period of 15 years that can be extended indefinitely by blocks of five years. Currently PPF gives an interest rate of 7.1%, which is one of the highest. No withdrawal from PPF corpus is permissible except some very emergency situation within the first 15 years.

But generally, every subscriber extends his/her PPF account till the age of 60 or beyond. There are multiple options to extend the account to indefinite period. Money9 gives you a brief description of those options.

Account holders can either extend the PPF account with fresh contributions or extend the account with no fresh contributions. But in both the cases the interest would be credited regularly. Industry experts say it is better to know the PPF rules before making any withdrawals on maturity.

Extending with fresh contributions

By submitting Form H, account holders need to intimate the post office or the bank whether they wish to continue their PPF account with fresh contributions. If the 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.

Additionally, if the form is not submitted and yet contributions are made no tax benefit under section 80C will be available.

Extending with no fresh contributions

For this scenario, the account holders do not have to inform the bank. The account balance will continue earn interest. After 15 years, the account holder has to inform the post office or bank within one year whether he/she plans to continue with deposits.

After one-year, account holders will have to either withdraw the full balance or extend their accounts without fresh contributions by a five-year duration.

Close the PPF account

Another option is to close the PPF account once the 15-year primary duration gets over. The person has to inform the bank and submit the form to withdraw the full money. This withdrawal is fully exempt from taxes.

Advantages of PPF

PPF comes under the EEE category, i.e. contribution, interest earning and withdrawal all are exempt from income tax. Besides, one can take tax deduction up to Rs 1.5 lakh in a single fiscal year.

One person can have only one PPF account at a time, multiple PPF accounts are not permissible and the individual would not get any benefit, if he/she has multiple PPF accounts.

PPF accounts allow partial withdrawal from the seventh financial year. Partial withdrawals from the PPF are also tax-free. Partial withdrawals are also allowed even if the PPF account is extended beyond 15 years or more.