LITTLE-KNOWN FACTS EXPLAINED
EXTENSION AFTER MATURITY
PPF account matures after 15 years. The subscriber can fully withdraw the balance outstandingupon maturity. Otherwise, the account can be extended for any number of years. However, theextension has to be done in five-year block periods. Let us say, an account was opened on March31, 1997 (FY 1996-97). The account matures by March 31, 2012 and entire amount can bewithdrawn the next day, that is, April 1, 2012.Or if the subscriber wishes, he/she can extend the account for another five years. The same canbe repeated, at the option of the subscriber, for another five years after 20 years. As long as theinvestor desires, this process can be continued for any number of years, of course, in five-yearblock periods. For extension, there are two options for the subscriber: 1). Extension withsubscription and 2). Extension without subscription. However, if the account is extended with thefirst option (ie, with subscription), then the account cannot be changed over to the second option(ie, without subscription) and vice versa.
1. With subscription:
In this case, the subscriber can withdraw to an extent of 60 per cent of balance that is standing tothe credit at the beginning of each extended period. This can be withdrawn in one or moreinstalments restricted to once in a financial year. Balance outstanding will continue to earninterest. One important thing to note under this option is that this has to be informed, in writing, tothe bank or Post Office where the account is maintained, failing which subscribers would not getany interest on the deposits made after the expiry during the period of extension nor can he claimany tax benefit under section 80C for the subscriptions made beyond the expiry. The informationshould be intimated to the PO/bank before the expiry of one year from the date of extension.
2. Without subscription:
Any amount can be withdrawn after the extension without any quantitative restrictions. However,only one withdrawal is permitted in a financial year. Balance outstanding will continue to earninterest.
WITHDRAWAL AND REINVESTMENT
As explained below, subscribers can withdraw money after six years. One of the best ways toenhance the post-tax returns from a PPF account is to use this facility. One can withdraw theeligible amount and reinvest the same in PPF account and claim deduction under section 80C.However, in order to avoid any complication from the Income Tax Officer (ITO) to such withdrawaland reinvestment, investors can use a different method. That is, they can first make theinvestment and then withdraw the sum. This way, investor need not suffer any cash flow problem – in fact, his/her cash flow would improve to the extent of tax reduction as he/she claims taxbenefit for the amount reinvested.
TAX BENEFIT FOR INTEREST RECEIVED
Interest received by the subscriber is completely tax-free under section 10 of the Income Tax Act.