Public Provident Fund (PPF), is a long term investment scheme of the central Government of India. The main purpose of introducing this investment scheme is to offer an alternate scheme to the people who are not covered under Employee Provident Scheme (EPF). Which means it targets people who are either self employed or works under unorganized sectors. It doesn’t means people under EPF scheme are not allowed to invest under PPF, it is open for all. Like EPF, people can invest a small amount of money under this scheme to create a pool of money which they can use as there retirement corpus. Investment under this scheme offers attractive returns, moreover the returns from this investment are tax free. For more details on investment under PPF read the link below:-
As we have already discussed a lot about PPF investment in our earlier post lets move this discussion on and talk what will happen when the amount invested under PPF will mature?
Investment made under PPF matures after 15 years but if you are investing under PPF in the middle of financial year then calculation of 15 years will start from next financial year. For Example, you opened your PPF account on August 30, 1999 so your 15 year calculation will start from next financial year i.e April 1st, 2000. In this case your maturity date will be March 31st. 2015.
Once your PPF account matures, you get two options to go with:-
- Withdraw PPF : Withdraw your investment and close your PPF account. (You can open a fresh PPF account on expiry of your existing account).
- Extend : Extend your PPF account for next five years. (You can extend your PPF account for next five years for as many times as you want.)
Extend PPF Account
If you opt to extend your PPF account for next five years then you again have to choose one out of two available options i.e
- Extend without contribution : You can continue with your PPF account for next 5 years by choosing this option. This will allow you to earn interest on your PPF contribution for another 5 years (Which is tax free) without depositing any further money into your account.
- Extend with contribution : If you want to continue with your existing PPF account and want to invest for next 5 years then you need to intimate the institution where you hold your PPF account by submitting Form H within one years from the date of maturity. Choosing this option will make you invest minimum Rs 500 to maximum Rs 1 lakh to your PPF account annually on which you can claim deduction under section 80C of income tax act.
Once you choose to extend your PPF with contribution by submitting Form H, then you can not revert your choice. Which means you then have to continue with your PPF investment for next 5 years whereas if you don’t submit any form i.e Form H to extend with contribution or Form C for the withdrawal of PPF amount within 1 years of maturity, your account will automatically be extended for next 5 years without contribution. The interest earned during the extended period of the PPF continues to be tax-free.
Withdraw PPF Funds During Extended Period
Once your account completes 15 years the norms for the withdrawal or partial withdrawal becomes lenient for you. In other words, if you extend your PPF account without contribution then you can withdraw any amount from your PPF account subject to one withdrawal per year. In this case the balance remain in your PPF account will earn interest till balance remain in your account.
On the other hand, if you have extended your PPF account with contribution then you will be allowed to withdrawal upto 60% of the amount balance at the beginning of the each extended period i.e balance as on March 31st, 2015 in this case.
Although it is individual choice to extend existing PPF account for next 5 years or to close the existing PPF account and open new one. But you should remember if you go for new PPF account then you will face liquidity issue because of restrictions on PPF withdrawal till your account matures i.e after 15 years. However in case of extension you can take out your whole money within 5 years and you will earn tax free interest on your accumulated amount.