When the PPF matures, should we choose closure or extension? Which option benefits investors more? Let’s review the relevant rules before deciding.
PPF stands out as the best debt instrument for investors seeking stability and growth. Yet, a significant number of individuals choose to invest primarily for the tax advantages it provides under Section 80C, along with the allure of tax-free returns upon maturity. Additionally, the fact that it is a government-backed scheme adds a layer of trust and security, making it an appealing option for those looking to safeguard their investments.
When your investment goal is to save taxes while ensuring a secure, tax-free maturity amount, it naturally raises significant unclarity for investors. One of the most pressing dilemmas is whether to close or extend a Public Provident Fund (PPF) account after it matures.
After PPF Maturity Should We Close or Extend?
To make informed decisions regarding the closure or extension of your PPF after it matures, it’s essential to first grasp the relevant rules and regulations that come into play. Gaining this understanding will provide you with the clarity needed to navigate your options effectively.
I have written a detailed post on this – PPF withdrawal rules & options after 15 years maturity However, sharing the same here for your benefit.
You must first have clarity about the maturity of your PPF account. Refer below image for more clarity on this aspect.
We all know that the PPF period is 15 years. But in reality, Â it is more than 15 years. I tried to explain the same with the below image.Â
You may realize that if you opened the account on 10th August 2015, it wouldn’t mature on 10th August 2030, which would be 15 years later. Instead, the maturity date will be 1st April 2031, as the 15-year period actually begins on 1st April 2016. I trust this explanation clarifies the concept for you.
Now once the account matures, then you have three options. They are explained below.
Once the PPF account matures, then you have three options. Many feel that once the PPF account completes 15 years’ tenure then it is over. However, you have three options left. I tried to explain the same from the below image.
1) Closing of PPF account after the maturity or completion of 15 years-
This choice is widely recognized. We start by opening an account, making contributions for up to 15 years, and ultimately closing it to withdraw the total amount along with the accrued interest. Both banks and post offices typically highlight this option when you ask about the PPF feature. Thus, it can be considered a common choice for most PPF investors.
When you open your account on August 10, 2015, it will reach maturity on April 1, 2031. At that point, you can withdraw both your initial investment and the accrued interest in full. The account will then be closed automatically. IF you wish to make a new investment after this account has been closed, you will need to set up a new PPF account.
Are you aware of this? You can also take out the money in installments after it matures. However, you are limited to a year to make this choice. This implies that you can take out the money in installments until March 31, 2017, provided your account matured on April 1, 2016.
As long as you maintain your PPF account, you will continue to receive interest if it has matured and you haven’t closed it. Nevertheless, such accounts will not be eligible for any more contributions. Furthermore, unless you close the current account, you won’t be able to open a new one. The account will be automatically renewed for an additional five years (without the option to make contributions) following a year of waiting.
2) Extend PPF account without further contribution–
The default choice is this. This option will be automatically enabled if, as an example, your account matured on April 1, 2016, and you did not close it or apply to extend it for a further five years WITH CONTRIBUTION. Note that you have one year from the date of maturity to submit the application to extend the account with a contribution for a block of five years. If not, this choice will be chosen for you automatically.
This will be the default setting for a five-year period. This implies that the account will remain open for five years if you haven’t requested to extend it with a contribution or closed the account. The account that matures on April 1, 2016, for instance, will mature on April 1, 2021. After that, if neither the account was closed nor an application was made to extend it without making a contribution, the account will be extended for an additional five years. It has no bounds to it. You can still benefit from earning interest on the available balance in this kind of account. However, you are not permitted to make any more contributions to this type of account. After a year of the first choice, neither of you is permitted to modify it.
The most advantageous aspect of this option is the absence of any limitations on withdrawing the balance throughout this period. You have the right to withdraw any amount present in your account at any time without restrictions. The balance will continue to accrue earnings. However, this option may only be utilized once per year.
3) Extend PPF account with further contribution–
After the account reaches maturity, you must complete Form H and submit it to the post office or bank where your PPF account is held. It is important to note that the application must be submitted before the completion of 1 year from the maturity date. For instance, if the account matured on 1st April 2016, you must exercise this option by 31st March 2017. Failure to do so will result in the activation of the second option mentioned above by default. Upon submission of the form, the account will be extended for an additional 5 years.
If you have not opted for this option but continue to contribute as usual, then such a deposit amount neither earns any interest not eligible for Sec.80C tax benefit. To regularize it, you have to write it to the Ministry of Finance, (DEA) NS Branch through the Accounts Office to regularize the account which was continued by him without giving the option.
After choosing this option, you won’t be able to switch back to the second option mentioned earlier. Some people are reluctant to return to the second option mentioned earlier, primarily due to the available liquidity. This option doesn’t allow for the same level of freedom to withdraw the balance as the second option.
In this choice, you can withdraw 60% of the balance at the start of each extended period (a block of five years). For instance, if the account matures on 1st April 2016 with a balance of Rs.1 Cr, you can withdraw 60% of this amount during the 5-year block, i.e., Rs.60 lakh. The withdrawals can be Rs.20 lakh in the first year of extension, Rs.10 lakh in the second year, Rs.5 lakh in the third year, and so on until the 5-year extension matures. In the above example, the total withdrawal limit is Rs.60 lakh, which can be withdrawn in a single withdrawal or in yearly installments. However, only one withdrawal is allowed each financial year.
This rule applies to the next block of 5 years extension again.
Note that, for the first block of 5-year extension if you opted for the 3rd option, then in the next 5-year block period, you can opt for the 2nd option without submitting Form H. So you are free to choose the option after every such extension.
When examining the PPF post-maturity features, it becomes evident that opting for a 5-year extension with contributions is much more advantageous. This is because it provides liquidity over the extended period and the subsequent closure period is also 5 years. Conversely, closing the current PPF account and opening a new one would require contributions for 15 years and would not offer the same level of liquidity during the extended period.
However, if your financial goal is near the maturity of PPF and you are relying on this PPF account to fund the goal, then you have no option but to close the account. Hence, take a call on whether to close or extend based on your financial goal rather than just abruptly closing or extending.
