Investment of up to Rs 1.5 lakh in the Public Provident Fund (PPF) is eligible for a deduction from taxable income under section 80C of the income tax act. The interest earned on PPF deposits is also tax-free. While the PPF account has a tenure of 15 years, the account holder has the option to request for its extension in a block of five years, besides requesting for a closure of the account. On closure, the balance along with the interest is paid back.
PPF can be extended multiple times after maturity and here are the broad options that the account holder has, besides requesting for a closure:
- Extension of PPF account without fresh deposits: This is the default option if the account holder doesn't inform the post office or the bank about his/her intention to close or extend, after the maturity of the PPF account. The account is extended in a block of five years and the balance continues to earn interest as per the applicable rate of interest for PPF. The account holder is allowed to make one withdrawal in a financial year without any restriction on the amount.
- Extension of account with fresh deposits: The account holder must inform his bank or post office if he/she wishes to continue investing during the extended period, in the prescribed form within one year from the day of maturity. The form is available at the post office or bank, as the case may be, and is fairly simple to fill. One withdrawal is allowed every financial year. However, the total withdrawals over the block of five years cannot exceed 60 per cent of the balance in the account as at the beginning of the five-year period. For example, if someone has a balance of Rs 50 lakh in his PPF account at the start of the five-year extension period with deposits, he is not allowed to make a withdrawal of more than Rs 30 lakh during that extended block of five years.
Here is what the PPF extension form with contributions in the case of the State Bank of India (SBI) looks like:
Securing your retirement income
Deriving income from investments