Public Provident Fund (PPF) extension rules: While the PPF account matures after 15 years, excluding the financial year in which the account has been opened, investors are allowed to extend their accounts in blocks of five years each.

As per PPF rules, accountholders have the following options after the maturity:

  1. They can take maturity payments by closing the account.
  2. They can retain the maturity amount in their accounts without any deposit. In this case, the PPF interest rate will be applicable and the account holder will be allowed to take the payment at any time. Alternatively, they can take 1 withdrawal in each financial year.
  3. They can extend their accounts in blocks of 5 years each. For extension, account holders are required to apply within one year of the maturity by submitting the prescribed extension form. From the extended account, depositors can make 1 withdrawal in each financial year subject to a maximum limit of 60% of the balance credit at the time of maturity in the block of 5 years.

Currently, the interest rate on PPF deposits is 7.1%, which may be revised upwards in future. As the PPF interest rate is compounded annually, the maturity amount after 15 years can grow very fast if you continue to invest in extended blocks of 5 years each. Let’s understand this with an example.

5-year PPF account extension

Suppose you have deposited Rs 1.5 lakh/per in PPF account for 15 years and the interest rate is 7.1%. In this case, the total amount in your account will be approx Rs 40.6 lakh. If you extend the account for 5 years and continue to invest Rs 1.5 lakh per year, the maturity value of your deposits after 20 years will be approx Rs 66.5 lakh, the PPF calculator shows.

10-year PPF account extension

Suppose you have deposited Rs 1.5 lakh/per in PPF account for 20 years and the interest rate is 7.1%. In this case, the total amount in your account will be approx Rs 66.5 lakh. If you extend the account for another 5 years and continue to invest Rs 1.5 lakh per year, the maturity value of your deposits after 25 years will be approx Rs 1.03 crore, the PPF calculator shows.

15-year PPF account extension

Suppose you have deposited Rs 1.5 lakh/per in PPF account for 25 years and the interest rate is 7.1%. In this case, the total amount in your account will be approx Rs 1.03 crore. If you extend the account for 5 years and continue to invest Rs 1.5 lakh per year, the maturity value of your deposits after 30 years will be approx Rs 1.54 crore, the PPF calculator shows.

Should you extend the PPF account?

The maximum deposit allowed in a PPF account per financial year is Rs 1.5 lakh. This investment can also be claimed as a deduction under Section 80C of the Income Tax Act every financial year. Also, the interest earned and the amount withdrawn on maturity from the PPF account are tax-free. Therefore, it makes sense to extend the PPF account and invest as long as possible to maximise the benefit of compounding.

Disclaimer: The above content is for information purposes only. Please consult your financial advisor to understand whether you should invest in PPF or look for other options.