Saturday, October 18, 2014

PPF : Maturity Date , Extension Period , Loan Amount , Withdrawal Amount , Taxability of Interest from Public Provident Fund

Friends,  A person who has PPF account should read this article.  Even I had also opened PPF account 15 years ago, but was not aware about the date of Maturity of PPF account till date.  I mean to say I had opened my account on 19-10-1999 and was in view that my account will be closed after 15 years which will be 19-10.2014.  I was happy  to get maturity amount but bank has told me that maturity date of your PPF account is 31.03.2015.  It was shocked information  for me.  Therefore I request from all PPF account holders to read the below article to know regarding Maturity Date , Extension Period , Loan Amount , Withdrawal Amount or Taxability of Interest from Public Provident Fund account.

Some General Questions regarding PPF

  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 15-10-1999 ,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 31.03.2000 and 15 years from 31.03.2000 ends on 31.03.2015 .So maturity date in above case is 31.03.2015.

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 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.

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