Anyone with a Public Provident Fund (PPF) account knows it's a 15-year long-term savings plan to be precise.
Fifteen years on, what? Well, that is when the magic starts! After the initial 15-year period is over, you can continue to extend the deposit for five years at a time.
You don't need to start and continue a fresh PPF account for all 15 years: just extend the old account for five years at a time, indefinitely. The account holder shall make the option of account extension before the expiry of one year from the account's maturity. This way, the same PPF account offers additional liquidity over the initial term to what is offered.
Overall, after the initial fifteen-year period, you can convert your PPF investment into a five-year deposit that offers tax-free interest, tax savings under Section 80C of the Income Tax Act, and immense liquidity for your life. Now let's look briefly at extension rules.
Rules of extension
The PPF account may be continued with or without further subscription (after the 15 year term). Contribution rules for the extended account remain the same as over the 15-year period. It can not be changed once the choice is made for a five year block.The only thing investors should be careful about is that once an account is continued for any year without a contribution, the subscriber can not switch over to an extension of with-contributions.
The choice of extending the PPF account with subscription must be made within one year from the account's expiry date. If this is not done, then the account is deemed by default to have been extended for a period of five years without further contribution.
Coming to liquidity, an investor can withdraw up to 60 per cent of the balance to his credit at the beginning of each extended period in one or more instalments, but only one per year, by continuing his account with fresh subscriptions.
For instance, say your PPF account term expires on March 31, 2014. The balance in the account at that time is, say, the Rs 15 lakh. Now, you can opt to continue with the account for another five years (i.e. until March 31, 2019) and invest regularly as you were.
However, you can withdraw only Rs 9 lakh over the five-year period until March 2019, which is 60 percent of your credit balance on March 31, 2014.
But what if you want to keep going but don't invest more? In other words, you might want to earn the tax-free interest but may not want to commit additional funds. That is possible too.
Any amount can be withdrawn without restrictions in the event the account is extended without contribution. Yet only one withdrawal per year is permitted. The balance will continue to earn interest until it is withdrawn altogether.
At the post office or bank where the account is held, the investor must submit Form H if he intends to continue with the subscription.
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