The extension rules and options available for public provident fund accounts after maturity or after completion of 15 years are discussed. The national savings institute (NSI India) has a wonderful pdf rule booklet with all notifications and clarifications since inception, and this post is entirely based on that.
The aim here is to consolidate my understanding of the PPF extension rules after a question by Nihar Ranjan Pal at FB group Asan Ideas of Wealth yesterday.
We all know that a PPF matures after 15 years. Or 15 financial years from the FY of opening. For example, an account opened in FY 2000-01 (or before 31st March 2001) will mature on 1st April 2016.
There are three options available to a subscriber after maturity.
Option A Close the account and be done with it!
Option B Keep the account open without further contributions.
Option C Extend the account for 5 years with further contributions.
Let us look at B and C in detail.
Option B: PPF has an awesome feature. One can keep the account alive without contributions and the corpus will continue to earn interest!
However, if a matured PPF account is not extended for 5 years within one year of maturity, then such an extension is no longer possible.
The extension is necessary only if further contributions need to be made. If there is no need for such contributions either from a tax planning or corpus building point of view, an extension need not be made.
In this case,
The subscriber can make one withdrawal in each financial year of any amount within the balance
Also, if option B is chosen then unless the account is closed, a new account cannot be opened.
Option C: If further contributions are necessary then the account has to be extended for 5 years after maturity. Contributions should not be made without extension. And if extended, at least the minimum contribution of Rs. 500 a year should be made.
The extension has to be made via form H
If contributions are made without extending the account, they will not earn any interest and are not eligible for 80C deductions.
Option C once chosen cannot be revoked. The minimum contribution has to be made to keep the account alive.
In this case,
the subscriber is eligible to make partial withdrawals not exceeding one every year subject to the condition that the total of the withdrawals, during the 5 year block period, shall not exceed 60 per cent of the balance at his credit at the commencement of the said period. This amount can be withdrawn either in one installment (one year) and or in more than one installment in different years as per requirements of the subscriber.
This rule will apply to each extension period and is the key difference between options B and C.
Therefore, before extending the PPF account it is important to consider liquidity requirements. I see no need to extend the account if there is no use from further contributions.
If the PPF account is used for a child's education then option B may be better. When used for retirement, it depends on the money required and the kind of corpus available from other sources.
Also, if the PPF account was opened when young, it makes sense to keep extending it with further contributions. The main advantage of a PPF account is it can be just kept alive in initial years and periodically gains from equity can be shifted here (subject to total contribution limit). As we head to our mid-40s and 50s, the contribution can be increased gradually.