Friday, March 8, 2013

PPF (PUBLIC PROVIDENT FUND) ACCOUNT EXTENSION AFTER 15 YEARS


on Friday, March 8, 2013

We have asked a question on our Simple Tax India Face book page about PPF (provident Fund account ) extension after 15 years completion(maturity). We have provided three options in the answer.
  1. PPF account can not be extended after 15 years completion(maturity) .
  2. PPF account can be extended for 5  years after 15 year completion(maturity) Maximum period can be 15 years.
  3. PPF account can be extended after 15 years period (maturity) for block of 5 years at a time ,as many times as you want.
More than 80 % of person selected option (2) i.e PPF account can only be extended for 5 years after completion of 15 years period  and most of them are from accounting and finance field and having Graduate or Post Graduate degrees in Finance/Accounting.

 But is Option (2) is correct ? What you think ?

Before answering the above query first you should know 

what is maturity period for PPF Account . Means how to calculate 15 years period ? 

Relevant rule is given as under[rule 9(3)]
"....any time after the expiry of 15 years from the end of the year in which the initial  subscription was made by him "
Year here means :Financial year 

So ,as per PPF rules ,15 years is to be taken from the end of initial subscription year. Means by default each PPF account is to be matured on 31st March only .

Example : PPF  Account opened on 01.05.2000 ,calculate maturity date.

Ans : As per rule given above 15 years is to be taken from end of initial subscription year . In above case end of initial  financial year is 31.03.2001 and 15 years from 31.03.2001 ends on 31.03.2016 .So maturity date in above case is 31.03.2016.

What are the option available on maturity of PPF account?

On maturity of your PPF account you have three option
  1. Withdraw full amount and closed your account .
  2. Extend your account for a block of Five years without subscription.
  3. Extend PPF account for a block of Five years with subscription.
1.Withdraw full amount : First option need not more elaboration , you can withdraw full amount on maturity and amount received will be fully exempted from Income Tax .You have to apply on Form C to withdraw the amount .Interest up to the last day of the month preceding the month in which the application for withdrawals made will be given so make sure that you should apply for withdrawal in first week of the month to avoid possible loss of interest.

2.Extend PPF account for the Block of Five years without subscription : if you wish to continue but not want to  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  "with subscription" option in one year from the end of the maturity period ,this 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].

Withdrawal of balance Amount : In case the account is extended without contribution, any amount can be withdrawn without restrictions.(use form C) 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).

So you can withdraw full amount in you account any time during extend time.

3. Extension of PPF account With Further Subscription:As per the PPF rulebook:
“Subject to the provisions of sub-paragraph (3) a subscriber may, on the expiry of 15 years from the end of the year in which the initial subscription was made but before then expiry of one year thereafter, may exercise an option with the Accounts Office in Form H, or as near thereto as possible, that he would continue to subscribe for a further block period of 5 years according to the limits of subscription specified in paragraph 3.”
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 .

Example : PPF account opened on 21.08.2000.What is the maturity date ?when we should apply on form "H" for extension of PPF account with subscription ?

Ans :As the account was opened on 21.08.2000 ,to calculate maturity date ,15 years to be counted from end of the initial subscription year.In above example Initial subscription year is 2000-2001 and ends on 31.03.2001.

15 years from 31.03.2001 ends on 31.03.2016,so maturity date is 31.03.2016.

Extension application on Form H should be made before the end of one year from maturity date .
so in above case

Maturity date is =31.03.2016

Form H application should be made with in  : 01.04.2016 to 31.03.2017.(Download PPF account scheme Form H)

so in above case ,If  person  do not apply on form H before 31.03.2017 then his account will be extended automatically as"Extension without subscription" and can not be changed back to "Extension with subscription".

Limit of withdrawal in extended period :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). 

For example, say the term of your PPF account is ending on March 31, 2013. The balance at that time in the account is say Rs 20 lakh. Now, you may opt to continue the account for 5 more years (i.e. till March 31, 2018) and invest regularly as you have been.However, over the period of next five years till March 2018, you may withdraw only Rs 12 lakh which is 60% of the balance standing to your credit on March 31, 2013.Further you can withdraw only once in each year .

Correct answer :This time answer given by majority of person(more than 80 %) is incorrect and this result has come when correct answer was also available in option and most of persons who has attempted the  question is from Finance / accounting field. We have also given a hint by commenting that why persons are not selecting the Answer (1) and (3) ,even then participant stick with option two. Though CA Ritika pundir and Nilam Rathod selected the correct option . Correct answer is (3) .

As per Sec 9(3) of the PPF Scheme, at its maturity, the account can be continued for a block of 5 years. This facility is available for any number of blocks on expiry of each of the extended periods. The continuation can be with or without contribution.so We can extend PPF account after completion of 15 years by block of 5 years ,as many time as we wish . PPF is popularly known as 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.

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.

You may also interested in PPF investment by Cheque (tender date or clearance date )

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  1. its really amazing to know actual rule. unbelievable

    ReplyDelete
  2. Thanks for updating us.

    ReplyDelete
  3. What is the rate of interest applicable on balance when P P F is extended without contribution after completion of 15 years? will it be prevailing rate of interest for P P F? The post master where I hold my accunt says it will be at rate prescribed for saving bank.

    ReplyDelete
    Replies
    1. In your case Prevailing rate of Interest as applicable in PPF accounts is applicable .Post master have not told you the correct rule.

      Relevant rule reproduced here under
      (3) Closure of account or continuation of account without deposits after maturity:- Notwithstanding the provisions of sub-paragraph (1), any time after the expiry of 15 years from the end of the year in which the initial subscription was made by him, a subscriber may, if he so desires, apply in Form C or as ‘near thereto as possible together with his pass book to the Accounts Office for the withdrawal of the entire balance standing to his credit and the Accounts Office, on receipt of such an application from the subscriber, shall subject to the provisions of sub-paragraph (4) allow the withdrawal of the entire balance (together with interest up to the last day of the month preceding the month in which the application for withdrawals made) after making adjustments, if any, in respect of any interest due from the subscriber on loans taken by him and close his account.
      Provided that a subscriber may, if he so desires, make withdrawal of the amount standing to his credit, from time to time, in installments not exceeding one in a year.

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  4. wow Great Info...

    I Have shared This Info Here:-

    http://www.caclubindia.com/forum/actual-rule-of-ppf-account--242128.asp#.UTl-X9b-GxA

    ReplyDelete
  5. Saroj Kumar AgrawalMarch 8, 2013 at 6:07 PM

    I have downloaded a copy of Public Provident Fund Scheme (PPF), 1968 updated till 25.11.2011 Sec 9(3A) reads:

    (3A) Continuation of account with deposits after maturity :- Subject to the provisions of sub-paragraph (3) a subscriber may, on the expiry of 15 years from the end of the year in which the initial subscription was made but before the expiry of one year thereafter, may exercise an option with the Accounts Office in Form H, or as near thereto as possible, that he would continue to subscribe for a further block period of 5 years according to the limits of subscription specified in paragraph 3.

    Based on this section we can not draw the conclusion: “This facility is available for any number of blocks on expiry of each of the extended periods.”

    Note the phrase ‘on the expiry of 15 years’ in Sec 9(3A). This condition will be satisfied only for the first extension.

    In case there is any separate Circular/Notification which you have relied on, please provide reference to the same. I shall be thankful.

    ReplyDelete
    Replies
    1. According to Rule 9(3A) and (3B) the subscriber can continue to make deposits after the maturity of an account for one or more further blocks of 5 years without any loss of benefit. For this purpose, he will give his option in writing to the Accounts Office in Form H within one year from the date of maturity of the account. If the subscriber fails to give his option to continue the account within one year but continues to make deposits in the account, these deposits will be treated as irregular deposits and will not carry interest. Further these deposits will not earn rebate under Section 88 of Income Tax Act unless the account is regularised by the Ministry of Finance (DEA). For this purpose, the subscriber will have to write to the MOF (DEA). NS Branch through the Accounts Office for regularising the account, which was continued by him without giving the option.
      [MOF (DEA) letter No. F.7/8/88-NS 11 dated 11.8.1992]

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    2. Saroj Kumar AgrawalMarch 11, 2013 at 12:02 PM

      Thank you, Sir !

      Delete
  6. My daughter has PPF account with SBI but she is now married and lives in UK. However, she has an OIC card (Overseas Indian Citizen). Can she continue with her PPF account as it will another 4 years to mature. There will not be any issue at the time of redemption. Pls advise

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    Replies
    1. Yes , she can continue contribution till maturity but account can not be extended.

      There will no issue at the time of redemption ,further the maturity amount may be credited in NRE /NRO account of your daughter

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    2. Thanks Raja. For redemption of PPF a/c, when we have to apply? Is there a time period in which we can apply. Does it get automatically extended if we do not apply for redemption.

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    3. You should apply on completion of 15 year i.e on 01.04.2017.

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    4. Is there a time period within which we can apply for redemption
      or just one day after maturity. Why I am asking this question because I heard that some people were informed by bank because they did not come for withdrawal and so their account is automatically extended and they were not given their funds for 5 years. Pls clarify.

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    5. For NRI no extension can be granted as per direction of RBI , so if you withdraw money after 01.04.17 after completion of PPF , and the above said rule is in the knowledge of Banker/postmaster then no interest will be paid to you after cut off date(01.04.17) so why to take risk.

      However, In case of PPF account of resident Indian, if account is not extended with subscription through form H ,within one year from maturity then it will automatically extended as without subscription for ever , no action required from subscriber end.

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  7. Sir, I want clarification on maturity of PPF from your example. The account was opened on 20.8.2000 and till 31.03.2015, 15 contributions have already been paid (including the first when it was opened on 20.8.2000). Whether any contibution is required in 2015-16 which will be 16th contribution.

    Kindly clarify.

    Regards.

    S. Kapoor

    ReplyDelete
    Replies
    1. Yes , as per rule 500 minimum subscription is required to be made in whole financial year .so you should deposit at least 500.

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  8. I have my HUF since 1992 when I got married,comprising of me / spouse /only one son, it is derived from my father's HUF. My son was born in July 1996, and from July 1998 I have been contributing the maximum limits under PPF in his PPF account from my above mentioned HUF. I have extended the above PPF for a block of 5 years from today 05-4-2013. Next year in July 2014 my son will become a Major, can I take the PPF outstanding in his name as his capital for his Income Tax Returns. He is already enrolled for PAN number. Further how do i remit further PPF after he attains the age of majority.

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    Replies
    1. Yes , you can take outstanding amount as capital in Income tax return ,however as per income tax return only business assets are required to be shown ,so our advice is no need to show personal assets in income tax return .
      Further you can still remit amount in your son's PPF account.

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