Public Provident Fund is an ideal vehicle for long term investment, an important retirement saving tool for individuals, more so for those who are not salaried employees. In our article Understanding PPF we covered the investment amount, interest rate, power of compounding, who can open, where can one open. PPF is long term investment and it matures 15 years after close of the financial year in which the initial subscription was made. We also touched upon what happens when PPF account matures. In this article we shall expand on it.
Table of Contents
On Maturity of PPF
A Public Provident Fund (PPF) account has a maturity of 15 years but calculation of 15 years start from the end of financial year in which the account was opened. For example, If you have opened the PPF account on 15 July 2000, then 15 years tenure will start from the end of FY 2000-2001 i.e. 31st march 2001. The lock is till 31 Mar 2015 and so you can withdraw only after be 1st Apr 2016.
After 15 years, you have the following two options :
- Take out the maturity amount and close the account OR
- Continue the existing PPF account for further block period of 5 years. After the expiry of 5 years, you can continue to extend the duration of the PPF account by 5 years. There is no limit to the number of such extensions.
For example, say the term of your PPF account is ending on March 31, 2015. The balance at that time in the account is say Rs 10 lakh. Now, you may opt to continue the account for 5 more years (i.e. till March 31, 2020) and invest regularly as you have been. However, over the period of five years till March 2020, you may withdraw only Rs 6 lakh which is 60% of the balance standing to your credit on March 31, 2015.
For example, if you opened a PPF account in year FY 1999-2000, then it would mature on 1 Apr 2015. From 1st Apr 2015 to 31 Mar 2016 you have an option to encash your PPF balance or to extend the maturity of PPF for 5 years upto 2020. After 2020, you can continue to extend your PPF account to years 2025, 2030 and so on.
Note: Once your account expires, you can open a new PPF account but then it is starting from scratch.
Continuing the PPF
For continuing the PPF account you have two options:
- Continue Without further contributions i.e you may wish to earn the tax-free interest but may not wish to commit further funds. OR
- Continue With further contributions. The rules for contribution to the extended account remain the same as during the 15-year period i.e you can claim 80C deductions on amount invested in PPF and invest upto Maximum Limit (which for For Financial Year 2014-15 and FY 2015-16 is 1.5 lakh(1,50,000)). The investor has to submit Form H.
FormH in pdf format is available at Indiapost webpage Form H. Please remember that Form H is required to be submitted within a period of one year from the date of maturity. So if you PPF matures on 1 Apr 2012, you need to submit Form H for continuation of PPF account with subscription between 1st Apr 2012-31 Mar 2013. One has to submit Form H at the post office or bank where the account is held . Sample image of Form H is given below. You need to fill in your PPF account number and when did the 15 years finished. So if you had started your PPF account in FY 1999-2000 say in Nov 1999 or Feb 2000 PPF matured on 15 years from 31-Mar-2000 i.e 31-Mar-2015, you have to write 1-Apr-2015. (Thanks to reader Kapil for correcting us)
Please Note that:
- The choice to extend the PPF account with subscription has to be made within one year from the date of maturity of the account by Filling Form H.
- First you have to fill the Form H to renew and then make the deposit for that year.
- The Option without further contribution is automatic,means if you do not opt for option with subscription in one year from the end of the maturity period ,second option without subscription will be applied automatically .
- Once the choice is made for a block of five years, it cannot be changed.
- Once an account is continued without contribution for any year, the subscriber cannot change over to with-contributions extension.
- The interest earned during the extended period of the PPF continues to be tax-free.
Liquidity during the extension period
Unlike the initial period of Public Provident Fund Account where Loan facility was available from the third year and Partial withdrawals were allowed only from the sixth year onwards, in extension period PPF is more liquid.
If extended without contribution, any amount can be withdrawn subject to one withdrawal per year. The balance will continue to earn interest till it is completely withdrawn
If extended with contribution, withdrawal up to 60% of the balance at the beginning of each extended period (block of five years) is permitted.
For example, say the term of your PPF account ended on Apr 1, 2012. The balance at that time in the account is say Rs 15 lakh. Now, you may opt to continue the account for 5 more years (i.e. till March 31, 2016) and invest regularly as you have been.However, over the period of five years till March 2016, you may withdraw only Rs 9 lakh which is 60% of the balance standing to your credit on March 31, 2011.
Close or Extend the Account
What is the best option i.e. To close this account and Open new-one or extend it for another five years?
I would suggest extension for another 5 years. Because If you close this account and open another one , you will have to wait for another 15 years for the maturity. And as there is more balance if extending the account, you earn more interest.
Extension and Non Resident Indian
The benefit of extension is not available to the NRI who opened the account before a change in their residency status. Recapping from Understanding PPF NRIs can not open a PPF account. However, if a resident who already has a PPF account and subsequently becomes a NRI, he can continue to invest into PPF till the initial duration (first 15 years) of the PPF expires. After that, the PPF account can not be renewed and would need to be liquidated.
- Understanding Public Provident Fund, PPF
- Voluntary Provident Fund, Difference between EPF and PPF
- Basics of Employee Provident Fund: EPF, EPS, EDLIS,
- Taxation of investments : EEE, ETE, TEE..
You can close the Public Provident Fund account after completion of 15 years from the close of the financial year in which the initial subscription was made. You also have the option of extending the PPF for block of 5 years with or without subscription.