New Delhi: The Public Provident Fund (PPF) is one of the most popular savings plans because it is considered a limited risk-free investment tool. Contributions made in PPF for up to an investment of Rs 1.5 lakh help you get income tax deduction benefits under Section 80C. In fact, the interest and reimbursement are also tax-free. It has a 15-year maturity period, so what do you do with your account once you’ve completed your tenure?
If you don’t need the money right away or in the next few years, it’s wise to extend the account’s maturity by a couple of years. In addition, you can choose the Extension with contributions option. Remember that this is not the only option. Depending on your requirements, you can decide what to do with an expiring PPF account.
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There are three different options you can exercise:
Close the PPF account
You can choose to withdraw the entire PPF corpus tax-free, after which the account is closed.
Extension for five years without contributions
With this option, you can extend the life of the account for an additional five years, but you do not make new contributions. The account balance continues to earn interest for these extended five years.
In case you need to withdraw money, you can, but only one withdrawal is allowed each year. There is no restriction on the size of the withdrawal. For example, from the PPF account balance of Rs 25 lakh, you can even withdraw Rs 23 lakh at one time during this extended period (with this option chosen)
Extend for 5 years WITH Contributions
If you choose to expand the account, you will need to make contributions (at least a minimum) to the PPF account each year. The account balance and new contributions will continue to earn interest.
It should be noted that there are some withdrawal restrictions. During the five years, you may withdraw a maximum of 60 percent of the account balance that existed at the beginning of the extension period. For example, if you had Rs 40 lakh at the beginning, you can withdraw 60 percent of that, which is Rs 24 lakh. Don’t forget that only one withdrawal per year is allowed.
Also, keep in mind that you must inform the bank or the post office of your choice of extension, if you do not clarify it at that time, the extension without contribution is the option chosen automatically. In fact, any change in the interest rate during the term of your instrument will affect the existing PPF accounts and the total balance.
However, you will need to visit the branch at least once during the extension process. Now that you know what options are available, you should also know how to use these options.
Basically, if you don’t need the PPF money for the next five years, then it’s ideal to extend the scheme with contributions. Also, it is better to make contributions above the minimum threshold requirement of Rs 500 per year.
For those who are still young and in their 30s and 40s, there is a chance that they may not need PPF money for years to come. Better to stick with it ‘with input’. If you are young, be sure to invest in other investment options as well.
Those who have retired with a large PPF balance can use it as a pension tool. Those who have invested in PPF for a particular purpose obviously cannot withdraw money from the account. For those people, closing the account is the obvious choice.
In such a case, you can also opt for an extension without further contributions instead of simply closing the account because you can withdraw the full amount at any time. For example, for a 4-year course, you only withdraw 25 percent of your PPF balance each year. Later, you can continue to use the PPF account normally (albeit with a much lower balance).
Remember, it is entirely up to your personal needs and circumstances what you intend to do with the PPF money.