As Public Provident Fund (PPF) accounts complete their 15-year maturity period, account holders are required to decide the next course of action in line with the scheme’s rules. The PPF scheme, backed by the government, allows investors to either withdraw the maturity amount or continue the account.
At maturity, investors have the option to withdraw the entire balance, extend the accounts in blocks of five years with fresh contributions, or continue without making any additional deposits. Understanding these rules become crucial, as each option comes with different implications for liquidity and returns.
A PPF account is offered by any post office or public bank and some private banks in India, for a minimum deposit of ₹100-500 each month, and a maximum deposit of ₹1.5 lakh annually. It’s considered one of the safest investment options, which offers steady returns over the years.
What happens after your PPF account hits maturity?
A PPF account matures after 15 years, after which an account holder can withdraw the entire balance along with accumulated interest and close the account. The scheme follows the Exempt-Exempt-Exempt (EEE) model, meaning the investment, interest earned, and maturity proceeds are all fully tax-free.
The interest rate of PPF is set by the government and revised every quarter. For the current period, the scheme offers an interest rate of 7.1% per annum, compounded annually. The interest is calculated on the lowest balance between the 5th and the last day of each month and credited to the account at the end of the financial year.
What are the options post maturity?
— Withdraw the full amount: The account holder can choose to withdraw the entire corpus upon maturity, giving them complete liquidity and zero tax liability. This option may suit those who require funds for major expenses such as home purchase, wedding, or retirement planning.
— Extend your PPF account: An individual can also extend their PPF tenure in blocks of five years, with no limit on the number of extensions. There are two different options to extend your tenure:
- With contributions: You can continue investing up to ₹1.5 lakh annually and keep claiming tax deductions under Section 80C.
- Without contributions: A person can also choose to let the existing corpus earn tax-free interest, but in such cases, no fresh tax benefit will be available.
- Eligibility after an extension: if you extend with contributions, withdrawals are limited up to 60% of the balance over 5 years, and only one withdrawal is allowed per financial year, according to ClearTax.
Hence, an extension may be ideal choice if an individual is not in need of immediate funds and want continued tax-free compounding. Withdrawal can be a possible route if you seek liquidity or want to re-allocate your funds in different assets such as stocks, mutual funds, or other government-backed schemes.
Rules for partial and premature withdrawals
Partial withdrawals from a PPF account are allowed are allowed after five years of the account being active, In such cases, investors are permitted to withdraw up to 50% of the balance. This facility provides some liquidity without closing the account or affecting its overall tenure.
Meanwhile, premature closure of a PPF account is also permitted after five years, but comes with a 1% reduction in the applicable interest rate. Notably, this is only allowed in certain cases such as due to change in residency status, for higher education fees or for medical emergencies.
Disclaimer: This story is for educational purposes only. The views and recommendations made above are those of individual analysts or broking companies, and not of Mint. We advise investors to check with certified experts before making any investment decisions.
