This text discusses learn how to deal with PPF accounts which can be about to mature. When and learn how to prolong it and when to not.
A PPF matures after 15 monetary years from the FY of opening. For instance, an account opened in FY 2000-01 (or earlier than thirty first March 2001) will mature on 1st April 2016. There are three choices obtainable to a subscriber after maturity. (1) Shut the account and be accomplished with it! (2) Hold the account open with out additional contributions. (3) Lengthen the account for five years with additional contributions.
If we’ve got been saving for a specific purpose, choice 1 is the fitting selection. Even right here, an extension is a consideration. For instance, say we run a PPF account as guardian for our baby. That is meant for her school schooling. Nonetheless, because the admission course of attracts close to, if we will handle the funds from different sources (with out dipping into the retirement corpus), we will contemplate changing the minor account to a significant account and lengthening it.
On this case, the kid will begin her profession with a PPF account with a lock-in of solely 5 years, which may be prolonged indefinitely. It’ll even have significantly better liquidity than beginning a brand new account (see under).
Then again, liquidating the minor PPF account and beginning a brand new one for the kid after she turns 18 together with her cash can also be completely advantageous. There isn’t a “loss” right here as the cash can be utilized to partially/absolutely fund school, and the remaining may be routed to the retirement corpus.
If we select choice (2), the corpus will proceed to earn curiosity! We are able to make one withdrawal every monetary 12 months for any quantity. Whereas it is a good choice, it’s of little sensible use. If we withdraw with out contributions, the corpus will quickly drop to zero.
If the cash shouldn’t be required instantly (choice 1 ) or in phases (choice 2), extending a PPF account is a more sensible choice. Nonetheless, such an extension must be made inside one monetary 12 months of maturity. The extension would require a number of bodily visits to the department. If contributions are made with out extending the account, they won’t earn any curiosity and will not be eligible for 80C deductions. As soon as the extension is made, it can’t be revoked.
Withdrawal rule after extension: The subscriber can solely withdraw 60% of the account steadiness firstly of the extension, both in one-shot or unfold over the five-year interval. Apart from the contributions, that is the important thing distinction between choices (2) and (3).
I used to be not too long ago knowledgeable on Twitter that some banks don’t approve of repeated PPF extensions and like a recent account to be opened. The PPF rule ebook states that limitless five-year block extensions may be made.
A subscriber might at his choice (to be exercised earlier than the expiry of the
first 12 months of each prolonged block interval) avail of this facility for an extra block
of 5 years on expiry of 20 years or on expiry of 25 years and so forth, from the tip
of the 12 months during which the preliminary subscription was made.
Nonetheless, the road “to be exercised earlier than the expiry of the primary 12 months of each prolonged block interval” is complicated. I perceive that refers to partial withdrawals (as much as 60%) referenced above. One other risk is that it refers to additional extensions – 20+5 and 25+5 years- however this doesn’t make a lot sense.
Additionally, we will train the choice (2) after exercising the choice (3) for any variety of block intervals.
If the account is sustained with deposits for a number of block interval of
5 years, the subscriber can depart the account with out deposits on
completion of any block interval. The account will proceed to earn curiosity
until it’s closed and the subscriber could make one withdrawal yearly
type the account.
To reply the query, “Ought to I shut my PPF account after maturity or prolong it?” if you don’t want the cash for spending for the following 5 monetary years, then extending the PPF account could be smart. In case your asset allocation (for a purpose that’s far-off – say 15+ years away) is debt-heavy, you may right it in two methods after extension: (A) progressively withdraw from PPF to fairness. (B) Briefly and suitably cut back the funding to PPF.
Extending a matured PPF reduces the lock-in interval and improves liquidity with out impacting the tax-free standing of the already amassed corpus. It’s a pure selection however have to be accomplished after appreciating private circumstances, guidelines and limitations. When coping with banks, it’s best to imagine they’re unaware of the principles and preserve the rule ebook useful.
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