Tuesday, January 24, 2012

PPF extention after 15 years- Indefinitely ???PPF rules 1968

on Tuesday, January 24, 2012

You may be surprised after reading the above heading and interested to know what it exactly means and how it is possible.Most of investor has a prepception that PPF is a 15 Year investment plan .But this is a fact that it can be extended to indefinitely but subject to 5 year block at a Time .

PPF is 15 year scheme .However, after the initial period of 15 years is over, one can keep on extending the deposit for a period of 5 years at a time. In fact, this is where the magic of PPF begins.

One need not start a fresh PPF account and continue it for all of 15 years — just extend the old one for five years at a time, indefinitely. This way, the same PPF account offers additional liquidity to what is offered during the initial term.

Overall, then, after the initial 15-year period, you can convert your PPF investment into a 5 year deposit that offers 8% tax-free interest, tax saving under Sec. 80C and immense liquidity and all this for your lifetime. Now, let’s briefly examine the rules of extension.

The PPF account can be continued (after the term of 15 years)

  • with further Subscription or
  • without further subscription. 

With Further Subscription:Coming to liquidity, an investor, continuing his account with fresh subscriptions, can withdraw up to 60% of the balance to his credit at the commencement of each extended period in one or more installment, but only one per year.(Notification F.7/2/97-NS IIdt. 9.2.1998). This Option must be opted on FORM -H ,with in one year from the end of the maturity period ,otherwise option without subscription will be applied automatically .

For example, say the term of your PPF account is ending on March 31, 2011. The balance at that time in the account is say Rs 15 lakh. Now, you may opt to continue the account for 5 more years (i.e. till March 31, 2016) and invest regularly as you have been.However, over the period of five years till March 2016, you may withdraw only Rs 9 lakh which is 60% of the balance standing to your credit on March 31, 2011.

Without further subscription:if you wish to continue but not invest further? In other words, you may wish to earn the tax-free interest but may not wish to commit further funds. That, too, is possible.This Option is automatic,means if you does not opt for first option "with subscription" in one from the end of the maturity period ,second option without subscription will be applied automatically .

The only thing that investors should be careful of is that once an account is continued without contribution for any year, the subscriber cannot change over to with-contributions extension. [Notification F.3(6)-PD/86 dt 20.8.86].

In case the account is extended without contribution, any amount can be withdrawn without restrictions. However, only one withdrawal is allowed per year. The balance will continue to earn interest till it is completely withdrawn.(Clarification 7 to Clause 9(3A) of the PPF Scheme, 1968).

I was under the impression that these aspects of PPF are not commonly known amongst investors. However, it turns out that some bank branches, too, aren’t fully aware of these rules.

Several  bank has flatly refused to extend the account and instead wants the investor to close the existing account and start a fresh one.Few bank has specified that an extension will be allowed only for two blocks of five years each. After that, the account will have to be closed.In another case, the bank official specifies that post 15 years, 60% of the closing balance may indeed be withdrawn, but this has to be done at one shot more than one installment will not be allowed.Another bank dictates that withdrawal after maturity has to be done in a similar fashion as it was being done during the tenure of the scheme.but all these are whims of the Bank staffs.

The issue does get resolved when you show them the rule book, of course, but it is felt that given the popularity and demand for the instrument, some training in PPF rules will prevent wastage of valuable time for both depositors and bank concerned.
Pls Note that HUF is not eligible to Invest in PPF as written in original rules to be downloaded by you .So read only relevent rules as shown above .
Download PPF rules 1968

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  1. can i have my account and two of my kids account to be maintained individually i.e all together three accounts and paying 1 lakh each in every account.

    1. This comment has been removed by the author.

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  2. I think this reply is wrong. You can deposit 1 lakh in each account but can claim only 1 lakh under 80C. So you can get tax free interest on 3 lakhs, but can get basic deduction only of 1 lakh.

    1. Yes you are correct above reply has been deleted and new reply has been added

  3. Yes, the PPF Accounts can be extended for any no. of years in a block of 5 years each

    However, most of the employees working in the Post Office say that PPF Account can be extended only once but the fact is that PPF Accounts can be extended any no. of times for a block of 5 years

  4. after extension of 5 year total 20 year is ppf also extened 5 year