Should You Extend Your PPF Account After Maturity? Here's What You Need To Know
Public Provident Fund (PPF) is a government-backed popular savings scheme in India. One of its key advantages is the triple tax benefit it offers — deposits made into a PPF account, the interest earned, and the maturity amount are all exempt from tax under Section 80C of the Income Tax Act.
The PPF scheme is often seen as a retirement fund accumulator due to its 15-year lock-in period. Individuals can invest up to Rs 1.5 lakh in the scheme in a particular financial year, which currently offers an annual return of 7.1%. Besides offering security and stable returns, the PPF scheme also provides features like loan options and partial withdrawals.
Many investors use the scheme as a critical diversification tool to add stability to their portfolio. Deposits made under the scheme are exempt under Section 80C of the Income Tax Act.
There is another element to this risk-free investment option, which is that the investors have an option to extend their PPF investment beyond the 15-year lock-in period.
The scheme allows individuals to extend their investment indefinitely in blocks of five years. This means that after the 15-year lock-in period, investors can choose to keep their money growing under the scheme for another 5 years at a time.
What Happens After PPF Account Maturity?
To continue their PPF account after the initial 15-year lock-in period, subscribers must exercise this option within one year of the account's maturity. During the 5-year block, the subscriber can make partial withdrawals once a year. However, the total withdrawals during the block cannot exceed 60% of the balance at the start of the 5 years.
According to the rules, a subscriber can continue making deposits into their PPF account after maturity for multiple 5-year blocks without losing benefits. However, all compliance documents must be submitted on time or else account holders will lose earnings on interest rates and tax rebate benefits.
Account holders can also choose not to make any deposits in the extended block years and simply earn interest on their existing contribution.
Should You Withdraw PPF After Maturity Or Extend It?
The decision to withdraw or extend PPF contribution post-initial maturity depends on the individual's preference and financial goals. However, if one does not require the money immediately, financial experts advise extending the account to maximise returns.
How The Power Compounding Works For PPF Post-Maturity?
A contribution of Rs 1.5 lakh for 15 years = a maturity amount of Rs 40,68,209, including Rs 18,18,209 in interest earned.
The investment made during the first 15 years stood at Rs 22,50,000. With another 5-year investment of Rs 1.5 lakh per year, one can earn Rs 36,58,288 in interest, taking their maturity amount to nearly Rs 67 lakh.
If someone chooses to let their 15-year maturity amount sit in the PPF account for another 5 years without making an extra contribution, their amount comes to:
Principal: Rs 40,68,209,
Interest earned during 5 years: Rs 16,64,377
Final maturity after 20 years: 57,32,586
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