On Maturity of PPF Account: Individuals, particularly those who are not salaried workers, may benefit from the Public Provident Fund as a medium for long-term savings and as a means of preparing for retirement. PPFs are long-term investments that mature 15 years after the end of the financial year in which they were first purchased. This article has a brief description of PPF and what happens when a PPF account reaches maturity.
PPF’s Maturity
The maturity of a Public Provident Fund (PPF) account is 15 years, but the calculation begins at the financial year’s end in which the account was opened. For example, if you get a PPF account opened on July 15, 2000, your 15-year term would begin on March 31, 2001, at the end of the fiscal year 2000-2001. The lock will be in place until March 31 2015, and you will be able to withdraw only after April 1, 2016.
After 15 years, you can choose between two options:
- Withdrawing the maturity account and then closing the account, OR
- Keep the current PPF account open for another 5-year block duration. After the first five years have passed, you will continue to extend the PPF account for another five years. There is no limit to the number of extensions that can be created.
Let’s say your PPF account’s term is set to expire on March 31, 2015. The account balance at the time was about Rs 10 lakh. You can now choose to keep the account open for another five years (until March 31, 2020) and continue to invest as you have been. However, you can only withdraw Rs 6 lakh (60 percent of the balance on your credit on March 31, 2015) over five years until March 2020.
E.g., if you started a PPF account in the fiscal year 1999-2000, it will mature on April 1, 2015. You have the option to either cash in your PPF balance or extend the maturity of your PPF for another five years until 2020 from April 1, 2015, to March 31, 2016. You will continue to add to your PPF account after 2020, for example, to the years 2025, 2030, and so on.
Note: Once your PPF account expires, you can open a new one, but you’ll have to start over.
Continuation of PPF
You have two options for keeping your PPF account open:
- Keep going without making any added contributions – You can choose to receive the tax-free interest but not contribute any additional funds, OR
- Keep going while making the added contributions – The rules for contributing to the extended account remain the same as they were during the 15-year cycle, i.e., you can demand 80C deductions on amounts invested in PPF and invest up to the maximum limit (which is 1.5 lakh (150,000) for FY 2014-15 and FY 2015-16). Form H must be completed and submitted by the investor.
Online, you can download FormH in pdf format. Please keep in mind that Form H must be completed and submitted within one year of the maturity date. So, if your PPF matured on April 1, 2012, you must fill out Form H to continue your PPF account with a subscription between April 1, 2012, and March 31, 2013. Form H must be completed and sent to the post office or bank where the account is kept. You must enter your PPF account number and the date the 15-year period ended. So, if you began your PPF account in FY 1999-2000, say in November 1999 or February 2000, and your PPF matured 15 years later on 31-Mar-2000, you could write 1-Apr-2015.
Please Note The Following
- Filling out Form H within one year of the account’s maturity date is the only way to expand the PPF account with a subscription.
- To renew, you must first complete Form H and then deposit for that year.
- The choice for no more contribution is the default, which means that if you do not choose the option with a subscription within one year of the maturity period’s conclusion, the second option without a subscription will be applied automatically.
- It is impossible to reverse a decision taken for five years.
- The subscriber cannot switch to a with-contributions extension after an account has been continued without contribution for any year.
- The interest gained on a PPF for a more extended period is also tax-free.
Liquidity for the Extension Period
Unlike the initial duration of the Public Provident Fund Account, when loans were only available after the third year, and partial withdrawals were only permitted after the sixth year, the extension period of the PPF is more liquid.
If the loan is extended without a contribution, that amount may be removed, but only once per year. If the balance is entirely removed, it will continue to earn interest.
If the loan is extended with contributions, you can withdraw up to 60% of the balance at the start of each extended period (block of five years).
Assume the term of your PPF account expired on April 1, 2012. The account balance at the time was about Rs 15 lakh. You can now choose to keep the account open for another five years (until March 31, 2016) and continue to invest as you have been. However, you can only withdraw Rs 9 lakh (60 percent of the balance on your credit on March 31, 2011) over five years until March 2016.
Closing or Extending The Account
Is it better to close this account and open a new one or keep it open for another five years?
I propose extending the contract for another five years. Even if you close this account and open a new one, the maturity will be delayed for another 15 years. You also gain more money if you prolong the account so there is more balance.
Non-resident Indians and Extension
The extension benefit does not apply to NRIs who opened their account before their residency status changed. Returning to PPF Basics, NRIs are unable to open a PPF account. If a resident already has a PPF account and then becomes an NRI, he will continue to invest in the PPF until the initial period (the first 15 years) expires. The PPF account will then be unable to be extended and will have to be liquidated.
The Bottom Line
After 15 years from the end of the financial year in which the initial subscription was made, you will close your Public Provident Fund account. You may also choose to extend the PPF for a 5-year block with or without a subscription.