PPF Account Extension after 15 years

You can continue to deposit and earn interest from your account even after maturity i.e. you can extend your PPF account, even after 15 years. Few people know this, but the PPF account has no limit on how many times it can be extended after the initial 15 year block matures. Lets understand more..

What is a PPF Account?

Public Provident Fund (PPF) scheme is a popular long term investment option backed by Government of India which offers safety with attractive interest rate and returns that are fully exempted from Tax.

How many PPF Accounts can one have?

You are allowed to have at most 1 (one) PPF account in one adult person's name.

Read more about the rules governing PPF Accounts here : Opening Multiple PPF Accounts in India

PPF Account Duration

Any PPF Account has a life of 15 years. The calculation of 15 years start from the end of financial year in which the account was opened. For example, If you have opened the PPF account on 15 July  2010, then 15 years tenure will start from the end of FY 2010-2011 i.e. 31st March 2011. The lock is till 31 Mar 2016 and so you can withdraw only after be 1st Apr 2016.

But then, you can also extend this account for periods of 5 years at a time, and that too indefinitely. Take care of the fact that many times, the banks themselves are not aware that there is no limit on the extension. If you ask the bank official, you will likely be informed that you can extend it only twice, for 2 blocks of 5 years each. However there is no such limit announced by the Government.

After every extension, your account continues to operate normally i.e. you make deposits of up to Rs. 1.5 lakh, earn interest and renew after 5 years if you wish. Everything remains E-E-E.

Read more about taxation regimes here : What is the meaning of Taxation Regimes EEE, EET, ETE & TEE

How to extend your PPF Account?

To extend your PPF Account by a block of 5 years, you need to use Form H. 

Types of Account Extension

There are two types of extension of your PPF account post the 15 year period.

Once the choice is made for a block of five years, it cannot be changed. The only thing that investors should be careful of, is that once an account is continued 'without further deposits' for any year, the subscriber cannot change over to with-contributions extension.

The choice to extend the PPF account with subscription has to be made within 1(one) year from the maturity of the account. If this is not done, then by default the account is deemed to have been extended 'without further deposits' for a period of five years.

These are the two types of extensions that are feasible on your PPF Account after 15 years of tenure:

1. With Further Deposits

• This means that you are extending your account with the provision of making further deposits.
• If you choose to extend by subscribing for a 5 year block, you can make partial withdrawals (using Form C) of up to 60% of the amount standing at your credit at the beginning of this 5 year block period. So you do have some degree of liquidity.
• For example, say the term of your PPF account is ending on March 31, 2014. The balance at that time in the account is say INR15 lakh. Now, you may opt to continue the account for 5 more years (i.e. till March 31, 2019) and invest regularly as you have been.

  However, over the period of five years till March 2019, you may withdraw only INR 9 lakh, which is 60% of the balance standing to your credit on March 31, 2014.

2. Without Further Deposits

• If you choose to leave your funds in the account, they will continue to earn interest for as long as they lie in the account.
• Interest will continue to be paid on your account and you will receive the total amount including interest up to the last month preceding the month in which you apply for a withdrawal (you need to use Form C to withdraw).
• Any amount can be withdrawn without restrictions. However, only one withdrawal is allowed per year. The balance will continue to earn interest till it is completely withdrawn. This makes the extended PPF Account more liquid than in the original 15 year period.

Extension of PPF Accounts for NRIs

NRIs can not open a PPF account. However, if a resident who already has a PPF account and subsequently becomes a NRI, he or she can continue to invest into PPF till the initial duration (first 15 years) of the PPF expires. After that, the PPF account can not be renewed and would need to be liquidated.

Loans from your PPF Account

If you choose to take a loan against your PPF account, you can repay it within 36 months from the 1st day of the month following the month in which the loan was sanctioned. So if your loan is sanctioned in June 2012, the following month is July 2012, and you have until end July 2015 to repay your loan. The interest rate charged is 2% p.a. over the prevailing PPF interest rate.
Read more here : Withdrawals and Loans from your PPF Account

Summary

PPF is one of the safest and most rewarding debt based investment option. I would suggest to go ahead and extend your PPF account for another 5 years. Because If you close this account and open another one , you will have to wait for another 15 years for the maturity, and that takes off the liquidity.

Read this article to understand the importance of Liquidity of your money : Liquidity is a vital aspect of your portfolio

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The book "From the Rat Race to Financial Freedom" has many such investment concepts explained in a very simple and uncomplicated manner, especially in the Indian context.

Cheers

Manoj Arora

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