What happens to PPF account after maturity?

Do you know what are the rules for withdrawing your money from your PPF account if you extend it for a block of 5 yrs after it’s initial maturity of 15 yrs? A lot of people think that once the PPF maturity is over, they get a licence to withdraw the money at any point of time in what ever way they want, in the case of extension of PPF. Today let me highlight some important points that you should be clear about PPF withdrawal rule in case of extension. To start with lets answer what Kailash Chandra asked me sometime back on his PPF

I had opened PPF account on 05.05.1995 and extended for 5 years. Now the balance is Rs.651000/- as on 30.04.2012 and want to withdrawal partly. What amount can I draw please intimate. (link)

Whats the answer? 

Its 60% Surprised!… lets move on

Before we move forward, let me clear that PPF is a life time account. One can extend it for next 5 yrs for infinite times, this means you can keep on extending it for another 5 yrs after the maturity is over. That would in a way makes it look like a 5 yrs closed fixed deposit earning you applicable interest rate with tax benefits and without any taxation involved, even having a partial withdrawal benefit   That’s one reason why you want to open your PPF account right now even if you don’t need it at the moment, so that the maturity is 15 yrs away from now. See it as a milestone!

1. PPF extended without any further contribution

The first situation is when you want to continue your PPF account, but do not want to put any further money in it . In this case all you want to do is just leave your PPF account as it is and let it earn the interest on the account accumulated. Note that if you dont take any action for 1 yr after your PPF matures, this option is default and automatically activates. Note that once its considered as “extended without any further contribution”, then later you cant put any further subscription in it. Now you can only withdraw from the PPF account, but cannot invest any fresh money in it. Note that in this case, you can withdraw any amount from your PPF account, there is no limit. You can withdraw 10%, 50% or 90% as there is no limit. The balance amount will keep on earning the interest further. However you can withdraw only once a year, not more than once. (Learn how PPF account interest is calculated)

Interesting Fact : Now as you know this,  can you see an interesting point here, this way PPF can be acting as a great Pension tool, where you can withdraw the interest part yearly once and then utilize it for full year. For example if a PPF account has 1 crore into it, and lets say the interest is 8% (just an example). You can withdraw 5 lacs out of the PPF account and the remaining 95 lacs will earn 8% interest, which will be 7.4 lacs. This 7.4 lacs will be added back to 95 lacs and the total next year would be 102.4 lacs. This way one can keep on withdrawing some amount from it and let it grow too.

2. PPF extended with further contribution

In another option, you can choose to invest in your PPF account on regular basis even after extension. But this has to be done within 1 yr of maturity (before the completion of 16 yrs in PPF). Note that in this case, you can only withdraw maximum 60% of your PPF amount in total within the entire 5 yrs block. Each year you can withdraw maximum once.

For example if your  PPF balance at maturity is Rs 1 crore. Then you can withdraw a total of maximum 60 lacs in entire 5 yr block. You can withdraw 20 lacs in first year, then 10 lacs in 2nd year and then 30 lacs in 4th year. But Once 60% is consumed , you cant touch any money further for the current block. Only when the 5 yrs are completed and new block of 5 yrs start, then your balance will be 40 lacs and then again the same rule applies. However note that at the start of a new 5 yr block, you can choose whether to continue the regular contribution or stop the contribution, like we discussed in point 1.

Important : If at the time of PPF maturity , you will have the potential to invest more in your PPF account in coming years, then better invest more and more and only when its time to retire or when you cant contribute more, extend the PPF with “no further subscription” option.

Bank/Post Office Officials have no idea about PPF Rules in detail

A lot of banks (SBI) and Post office officials have no idea about PPF rules in such a detail. They will tell you that it can be extended only 2 times and hence insist on closing the PPF account once the maturity + 2 extensions are done. Tell them that you know what are the rules and also teach them.