Many readers usually ask us variations of, “My PPF account is maturing; ought to I lengthen it or open a brand new one?” We focus on methods to deal with PPF accounts which might be about to mature. When and methods to lengthen them 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 out there to a subscriber after maturity. (1) Shut the account and be accomplished with it! (2) Hold the account open with out additional contributions. (3) Prolong the account for 5 years with additional contributions.
If now we have been saving for a specific purpose, choice 1 is the proper alternative. Even right here, an extension is a consideration. For instance, say we run a PPF account as guardian for our youngster. That is meant for her school schooling. Nevertheless, because the admission course of attracts close to, if we are able to handle the funds from different sources (with out dipping into the retirement corpus), we are able to take into account changing the minor account to a serious account and increasing 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 (in concept, no less than! Virtually, there could also be some roadblocks from officers unaware of the principles). It can even have significantly better liquidity than beginning a brand new account (see under).
Alternatively, liquidating the minor PPF account and beginning a brand new one for the kid after she turns 18 along with her cash can also be completely high-quality. There is no such thing as a “loss” right here as the cash can be utilized to partially/absolutely fund school, and the remainder 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 this can be 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 is just not required instantly (choice 1 ) or in phases (choice 2), extending a PPF account is a better option. Nevertheless, such an extension needs to 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 at first of the extension, both in one-shot or unfold over the 5 years. Other than the contributions, that is the important thing distinction between choices (2) and (3).
I used to be lately knowledgeable on Twitter that some banks don’t approve of repeated PPF extensions and like {that a} recent account be opened. The PPF rule guide 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.
Additionally, we are able to 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 go away 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
kind the account.
If you don’t want the cash to spend for the subsequent 5 monetary years, then extending the PPF account can be smart. In case your asset allocation (for a purpose that’s far-off – say 15+ years away) is debt-heavy, you possibly can right it in two methods after extension: (A) steadily withdraw from PPF to fairness. (B) Quickly and suitably scale 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 accrued corpus. It’s a pure alternative 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 hold the rule guide helpful.
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