It’s often the case when we make long term investments over a period spanning 15 to 20 years, we forget to track them in terms of both their performance as well as maturity as years go by. Recently I got an unpleasant surprise when I tried to make tax saving investment in my Public Provident Fund (PPF) a/c for the financial year gone by without realising that the tenure had matured and hence was not eligible for further investment. What followed was an equally unpleasant process to get the account extended and make it eligible for future tax saving purposes before it becomes too late. So, today’s column is a brief about the PPF account and things that matter about it.
About PPF Account
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PPF is a one-of-a-kind investment mainly because not only does it give you the tax benefit u/s 80C of The Income Tax Act 1961, the interest accrued on it is also exempt from tax. Adding to this if one invests regularly, over the years the benefits of compounding of interest adds cherry to the cake. But this account cannot be operated perpetually for it come with a maturity period which is 15 years from the end of the year in which the initial subscription was made into the account. For example, if the account is opened on January 23, 2003, the 15 years will get completed on March 31, 2018 and therefore one can withdraw the entire balance anytime after April 1, 2018. So, what are the options to the investor if their account matures?
Option 1: Close the account and withdraw entire proceeds: The first and the simplest option on maturity is to close the account and withdraw the entire proceeds from it. To close the account, one has to intimate the account office of the depository such as the Post office or SBI branch and the entire balance standing to the credit will be paid.
Option 2: Extend the account without fresh deposit: To continue PPF account without fresh deposits, one need not intimate the account office for such an extension as it will be automatically considered as extended. But, remember, no fresh contribution will be allowed thereafter. The balance will keep earning the applicable interest for the next 5 years.You will be allowed to make only one partial withdrawal in each financial year during the extended period. The subscriber can make one withdrawal in each financial year of any amount within the balance. Once the account is continued without deposits, for more than a year, the subscriber cannot opt again to continue the account with deposits for a block period of 5 years.
Option 3: Extend account with contribution: To continue PPF account with fresh contributions, it requires one to intimate the post office/bank by submitting the Form H. Without submitting this form, the deposits made into the account will be treated as irregular and no interest will be paid on the fresh contributions. Also, no tax benefit under section 80 C can be availed if the form is not submitted and yet contributions are made.
However, note that Form H (Now Form 4) needs to be submitted at the time of each extension within 1 year from the date of maturity if fresh contributions are to be made otherwise extension could be denied by the depository. Once the respective form is submitted extension is granted for a further block of 5 years. During this extended period 1 partial withdrawal is allowed by applying through form C, subject to the condition that the total of the withdrawals, during the 5-year block period, shall not exceed 60 percent of the balance at the credit at the commencement of the extended period. For example, the balance in your PPF account at the commencement of extension period is Rs 10 lakh then the maximum withdrawal during the extended block of 5 years cannot exceed Rs 6 lakh.
Should one extend or not?
To extend or not to extend the PPF account after maturity may not have a straight forward answer. However, considering things like tax-free interest and sovereign safety of the corpus, one may consider extending the account unless a capital expense was planned using the funds. Those who have still got a few years to retire have all the more reason to extend the PPF account and continue reaping the benefit of tax-free compounding.
