When the PPF matures, ought to we select closure or extension? Which choice advantages traders extra? Let’s overview the related guidelines earlier than deciding.
PPF stands out as the perfect debt instrument for traders searching for stability and progress. But, a big variety of people select to take a position primarily for the tax benefits it supplies underneath 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 choice for these trying 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 important unclarity for traders. Some of the urgent dilemmas is whether or not to shut or lengthen a Public Provident Fund (PPF) account after it matures.
After PPF Maturity Ought to We Shut or Prolong?
To make knowledgeable choices concerning 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 in your profit.
You need to first have readability concerning the maturity of your PPF account. Refer under picture for extra readability on this facet.
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.
Chances are you’ll notice that when you 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 might be 1st April 2031, because the 15-year interval truly begins on 1st April 2016. I belief this rationalization clarifies the idea for you.
Now as soon as the account matures, then you’ve got three choices. They’re defined under.
As soon as the PPF account matures, then you’ve got three choices. Many really feel that when the PPF account completes 15 years’ tenure then it’s over. Nevertheless, you’ve got 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 selection is widely known. We begin by opening an account, making contributions for as much as 15 years, and in the end closing it to withdraw the whole quantity together with the accrued curiosity. Each banks and publish places of work usually spotlight this feature whenever you ask concerning the PPF function. Thus, it may be thought of a standard selection for many PPF traders.
Once you open your account on August 10, 2015, it should 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 will want to arrange a brand new PPF account.
Are you conscious of this? You can too take out the cash in installments after it matures. Nevertheless, you’re restricted to a yr to make this selection. This means that you could take out the cash in installments till March 31, 2017, supplied your account matured on April 1, 2016.
So long as you keep 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 have the ability to open a brand new one. The account might 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 selection is that this. This feature might 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 selection might 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 when you haven’t requested to increase it with a contribution or closed the account. The account that matures on April 1, 2016, for 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 might be prolonged for a further 5 years. It has no bounds to it. You possibly can nonetheless profit from incomes curiosity on the obtainable steadiness in this sort of account. Nevertheless, you aren’t permitted to make any extra contributions to the sort of account. After a yr of the primary selection, neither of you is permitted to change it.
Probably the most advantageous facet of this feature is the absence of any limitations on withdrawing the steadiness all through this era. You could have the suitable to withdraw any quantity current in your account at any time with out restrictions. The steadiness will proceed to accrue earnings. Nevertheless, this feature could solely be utilized as soon as per yr.
3) Prolong PPF account with additional contribution–
After the account reaches maturity, it’s essential to full Type H and submit it to the publish workplace or financial institution the place your PPF account is held. It is very important notice that the applying have to be submitted earlier than the completion of 1 yr from the maturity date. For example, if the account matured on 1st April 2016, it’s essential to train this feature by thirty first March 2017. Failure to take action will consequence within the activation of the second choice talked about above by default. Upon submission of the shape, the account might be prolonged for a further 5 years.
In case you have not opted for this feature 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 means of the Accounts Workplace to regularize the account which was continued by him with out giving the choice.
After selecting this feature, you received’t have the ability to change again to the second choice talked about earlier. Some persons are reluctant to return to the second choice talked about earlier, primarily as a result of obtainable liquidity. This feature doesn’t enable for a similar stage of freedom to withdraw the steadiness because the second choice.
On this selection, you’ll be able to withdraw 60% of the steadiness at first of every prolonged interval (a block of 5 years). For 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 in the course of 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 whole 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 subsequent block of 5 years extension once more.
Notice that, for the primary block of 5-year extension when you opted for the third choice, then within the subsequent 5-year block interval, you’ll be able to go for the 2nd choice with out submitting Type H. So you’re free to decide on the choice after each such extension.
When analyzing the PPF post-maturity options, it turns into evident that choosing a 5-year extension with contributions is way more advantageous. It’s 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 provide the identical stage of liquidity in the course of the prolonged interval.
Nevertheless, in case your monetary objective is close to the maturity of PPF and you’re counting on this PPF account to fund the objective, then you don’t have any choice however to shut the account. Therefore, take a name on whether or not to shut or lengthen based mostly in your monetary objective quite than simply abruptly closing or extending.