ppf Account

One of the common issues raised by man y taxpayers is with regard to the treatment of PPF account after a period of 15 years tenure. Whether it has to be closed? What are the options of extension? Is it advisable to extend the PPF account? Whether the extension is possible without contribution.

Let us explore all the options.

We are already know that PPF account has a tenure of 15 years. After completion of the period of 15 years, taxpayers have three options as under:

  1. Close the existing account.
  2. Extend the account without contributions
  3. Extend the account with contributions

First Option: – Close the PPF account after the maturity or completion of 15 years. After closure, taxpayers can open the new account for fresh contributions if they wish to contribute.

Second option:  If your PPF account matured but you don’t close it then you will continue to earn the interest as long as you keep the account as it is. However, no further contribution will be allowed in such accounts. Further, no new account can be opened till old accounts is not closed. There is a feature of automatic extension for a block of 5 years if the account is kept as it is after a period of 15 years. That is to say, account will automatically extended for a block of 5 years (without contribution option).

This is the default option which is automatically get selected if the account holder don’t approach the bank within one year after completion of the period of 15 years. There is a default extension of 5 years. Taxpayers would continue to enjoy earning interest on the balance available in such account. However, fresh contribution is not possible in such case after one year of maturity of account.

The best feature of this option is, there is no limit to withdraw the balance during this period. You are eligible to withdraw whatever the amount available in your account at any point of time without any restriction. The balance amount will continue to earn. However, this option can be exercised only once in a year.

Third Option:  The option is available with the taxpayer to extend PPF account with further contribution. For extension, taxpayers have to submit the application in the prescribed form “ Form H” to either post office or bank where you have PPF account. Application has to be submitted within a period of 1 year from the date of maturity.

If no application is done within on years, the second option as discussed above will get activated by default. Once Form H is submitted, account will get extended for a block of 5 years.

An important point worth noting here is what if the amount is deposited in PPF account without exercising second or third option as mentioned above.

In such cases, deposit amount neither earn 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 for regularizing the account which was continued by him without giving the option.

Once anyone has opted for this option, then you can’t go back to 2nd option mentioned above. Few want to exercise 2nd option of above because of liquidity available there. Because in this option, you will not feel so free for withdrawing the balance as in case of 2nd option.

In this option, you will be allowed to withdraw 60% of the balance at the beginning of each extended period (block of five years) is permitted. It means, let us say the account matured on 1st April, 2016 and the available balance is Rs.1 Cr. Then, you are allowed to withdraw 60% of this Rs.1 Cr during the block period of 5 years i.e. Rs.60 lakh. You can withdraw Rs.20 lakh in 1st year extension, Rs.10 lakh in the second year and Rs.5 lakh in the third year and so on until 5 years extension matures. The overall limit in above example is Rs.60 lakh , this can be withdrawn either in a single withdrawal or in installment in each year.

This rule applies to next block of 5 years extension again.

Note that, for the first block of 5 years extension if you opted the 3rd option, then in next 5 years block period, you can opt the 2nd option without submitting the Form H. So you are free to chose the option after every such extension.

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