When the PPF matures, ought to we select closure or extension? Which possibility advantages buyers extra? Let’s evaluate the related guidelines earlier than deciding.
PPF stands out as the perfect debt instrument for buyers in search of stability and progress. But, a big variety of people select to speculate primarily for the tax benefits it supplies beneath Part 80C, together with the attract of tax-free returns upon maturity. Moreover, the truth that it’s a government-backed scheme provides a layer of belief and safety, making it an interesting possibility for these seeking to safeguard their investments.
When your funding objective is to save lots of taxes whereas making certain a safe, tax-free maturity quantity, it naturally raises vital unclarity for buyers. One of the crucial urgent dilemmas is whether or not to shut or prolong a Public Provident Fund (PPF) account after it matures.
After PPF Maturity Ought to We Shut or Prolong?
To make knowledgeable selections relating to the closure or extension of your PPF after it matures, it’s important to first grasp the related guidelines and laws that come into play. Gaining this understanding will give you the readability wanted to navigate your choices successfully.
I’ve written an in depth publish on this – PPF withdrawal guidelines & choices after 15 years maturity Nevertheless, sharing the identical right here to your profit.
You need to first have readability in regards to the maturity of your PPF account. Refer under picture for extra readability on this side.
Everyone knows that the PPF interval is 15 years. However in actuality, it’s greater than 15 years. I attempted to clarify the identical with the under picture.
It’s possible you’ll notice that if you happen to opened the account on tenth August 2015, it wouldn’t mature on tenth August 2030, which might be 15 years later. As an alternative, the maturity date shall be 1st April 2031, because the 15-year interval really begins on 1st April 2016. I belief this rationalization clarifies the idea for you.
Now as soon as the account matures, then you’ve three choices. They’re defined under.
As soon as the PPF account matures, then you’ve three choices. Many really feel that when the PPF account completes 15 years’ tenure then it’s over. Nevertheless, you’ve three choices left. I attempted to clarify the identical from the under picture.
1) Closing of PPF account after the maturity or completion of 15 years-
This alternative is widely known. We begin by opening an account, making contributions for as much as 15 years, and finally closing it to withdraw the entire quantity together with the accrued curiosity. Each banks and publish places of work usually spotlight this selection once you ask in regards to the PPF characteristic. Thus, it may be thought-about a typical alternative for many PPF buyers.
If you open your account on August 10, 2015, it’ll attain maturity on April 1, 2031. At that time, you’ll be able to withdraw each your preliminary funding and the accrued curiosity in full. The account will then be closed robotically. IF you want to make a brand new funding after this account has been closed, you have to to arrange a brand new PPF account.
Are you conscious of this? You may also take out the cash in installments after it matures. Nevertheless, you might be restricted to a yr to make this alternative. This means you could take out the cash in installments till March 31, 2017, offered your account matured on April 1, 2016.
So long as you preserve your PPF account, you’ll proceed to obtain curiosity if it has matured and also you haven’t closed it. Nonetheless, such accounts is not going to be eligible for any extra contributions. Moreover, except you shut the present account, you received’t be capable to open a brand new one. The account shall be robotically renewed for a further 5 years (with out the choice to contribute) following a yr of ready.
2) Prolong PPF account with out additional contribution–
The default alternative is that this. This selection shall be robotically enabled if, for example, your account matured on April 1, 2016, and also you didn’t shut it or apply to increase it for an additional 5 years WITH CONTRIBUTION. Notice that you’ve got one yr from the date of maturity to submit the applying to increase the account with a contribution for a block of 5 years. If not, this alternative shall be chosen for you robotically.
This would be the default setting for a five-year interval. This means that the account will stay open for 5 years if you happen to haven’t requested to increase it with a contribution or closed the account. The account that matures on April 1, 2016, as an example, will mature on April 1, 2021. After that, if neither the account was closed nor an utility was made to increase it with out making a contribution, the account shall be prolonged for a further 5 years. It has no bounds to it. You possibly can nonetheless profit from incomes curiosity on the accessible steadiness in this sort of account. Nevertheless, you aren’t permitted to make any extra contributions to this kind of account. After a yr of the primary alternative, neither of you is permitted to switch it.
Probably the most advantageous side of this selection is the absence of any limitations on withdrawing the steadiness all through this era. You could have the precise to withdraw any quantity current in your account at any time with out restrictions. The steadiness will proceed to accrue earnings. Nevertheless, this selection might solely be utilized as soon as per yr.
3) Prolong PPF account with additional contribution–
After the account reaches maturity, you should full Kind H and submit it to the publish workplace or financial institution the place your PPF account is held. It is very important word that the applying should be submitted earlier than the completion of 1 yr from the maturity date. As an example, if the account matured on 1st April 2016, you should train this selection by thirty first March 2017. Failure to take action will end result within the activation of the second possibility talked about above by default. Upon submission of the shape, the account shall be prolonged for a further 5 years.
When you’ve got not opted for this selection however proceed to contribute as regular, then such a deposit quantity neither earns any curiosity not eligible for Sec.80C tax profit. To regularize it, you need to write it to the Ministry of Finance, (DEA) NS Department by way of the Accounts Workplace to regularize the account which was continued by him with out giving the choice.
After selecting this selection, you received’t be capable to swap again to the second possibility talked about earlier. Some persons are reluctant to return to the second possibility talked about earlier, primarily as a result of accessible liquidity. This selection doesn’t permit for a similar degree of freedom to withdraw the steadiness because the second possibility.
On this alternative, you’ll be able to withdraw 60% of the steadiness at first of every prolonged interval (a block of 5 years). As an example, if the account matures on 1st April 2016 with a steadiness of Rs.1 Cr, you’ll be able to withdraw 60% of this quantity through the 5-year block, i.e., Rs.60 lakh. The withdrawals may be Rs.20 lakh within the first yr of extension, Rs.10 lakh within the second yr, Rs.5 lakh within the third yr, and so forth till the 5-year extension matures. Within the above instance, the entire withdrawal restrict is Rs.60 lakh, which may be withdrawn in a single withdrawal or in yearly installments. Nevertheless, just one withdrawal is allowed every monetary yr.
This rule applies to the following block of 5 years extension once more.
Notice that, for the primary block of 5-year extension if you happen to opted for the third possibility, then within the subsequent 5-year block interval, you’ll be able to go for the 2nd possibility with out submitting Kind H. So you might be free to decide on the choice after each such extension.
When inspecting the PPF post-maturity options, it turns into evident that choosing a 5-year extension with contributions is far more advantageous. It is because it supplies liquidity over the prolonged interval and the following closure interval can be 5 years. Conversely, closing the present PPF account and opening a brand new one would require contributions for 15 years and wouldn’t supply the identical degree of liquidity through the prolonged interval.
Nevertheless, in case your monetary objective is close to the maturity of PPF and you might be counting on this PPF account to fund the objective, then you haven’t any possibility however to shut the account. Therefore, take a name on whether or not to shut or prolong based mostly in your monetary objective somewhat than simply abruptly closing or extending.