The Public Provident Fund (PPF) is one of the most reliable and secure savings schemes for investors. Its maturity period is 15 years. Investors are often curious about what will happen to their account if they stop making new deposits after 15 years, and whether they will continue to receive interest.
The unique feature of a PPF account is that even after maturity, investors have the option to close the account and withdraw the funds, or they can extend it. If an investor does not fill out the account extension form and does not make any new deposits, the account automatically goes into passive extension mode. In this state, interest continues to accrue on the account balance, even if no new deposits are made.
Tax Benefits on Interest and Investments
One of the main reasons why PPF is so popular among long-term savers is its tax benefits. Investors can deposit a minimum of ₹500 and a maximum of ₹1.5 lakh per year into PPF. This investment is eligible for tax deduction under Section 80C of the Income Tax Act. Most importantly, the interest earned on it is completely tax-free.
This scheme offers tax-free benefits (EEE) at all three levels: investment, interest, and withdrawal at maturity, making it an unmatched tool for tax planning.
5-Year Term Rule
After maturity, investors can extend their account for a period of 5 years. During this period, they can either make fresh deposits or continue to receive interest on the old balance. If investors choose the active extension option, they must deposit a minimum of ₹500 every year and can continue to benefit from Section 80C. If they choose the passive extension mode, they will continue to earn interest even without making any new deposits. In this case, there is no tax on withdrawals.
₹71,000 Income Without Investing
PPF currently earns 7.1% annual interest. This means that if an investor has a balance of ₹10 lakh in their account and does not make any new deposits, they will still earn approximately ₹71,000 in interest each year. This interest will continue to accrue to their account, and the balance will continue to grow over time due to compounding. This rule is extremely beneficial for those who do not want to invest now but want to earn interest while keeping their money in a safe place.
