How a Public Provident Fund (PPF) account works

A public provident fund (PPF) account is an investment option that provides income tax deduction u/s 80C for the amount invested (subject to a limit of Rs 1.5 lakh a year). Interest received is exempt from tax and there is no tax on the amount received on maturity of the account either. In view of the tax benefits offered, many assessees open PPF accounts with their bank/post office to build a sizeable corpus.

Account maturity
PPF accounts have a lock-in of 15 years. On maturity, the investor has the option of taking any one of the following steps:

• Withdraw the proceeds and close the account.
• Continue the account for a block of five years.

Closure of account
If you choose to close the account, visit the bank branch /post office where the PPF account is held. A written application to withdraw the proceeds and close the account needs to be given with the original passbook. Bank details for maturity proceeds to be transferred have to be mentioned. Address and identity proof must be attached with a cancelled cheque. The bank/post office will check if the account has completed its lock-in. If yes, account will be closed and maturity proceeds credited to bank account.

Continue account for block of 5 years
In this case, you need to give an intimation in writing on a prescribed form to the bank/post office within a year of maturity of the account. You can keep the account operative with the balance standing to the credit of the account, without making any new contributions. Alternatively, you can keep making deposits and continue to avail tax deductions on such deposits. Once the block of five years is over, the account can be continued for another block of five years and so on. The account will continue to earn interest until it is closed.

Points to note

• PPF account cannot be attached by a person to pay off debts. A court decree also cannot ask the person to pay off debts using funds in his PPF account.
• During the first 15 years of the account, partial withdrawals are possible from the 7th year, subject to certain conditions.

(Content on this page is courtesy Centre for Investment Education and Learning (CIEL). Contributions by Girija Gadre, Arti Bhargava and Labdhi Mehta.)