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Public Provident Fund (PPF) is still one of the most reliable investment options in the country to create a large corpus in the long term without any market risk. This scheme, which comes with a government guarantee and sovereign security, offers full benefits of tax exemption (EEE status). Normally a PPF account matures in 15 financial years, but very few investors know that even after maturity, it can be extended in a block of 5 years. By choosing account extension at the right time, investors can create a tax-free corpus of over Rs 1 crore for their retirement or children’s future.
Complete mathematics of Rs 1.03 crore on annual investment of ₹ 1.5 lakh If an investor invests a maximum of Rs 1.5 lakh (i.e. Rs 12,500 per month) every financial year, then the calculation works like this, based on the current compound interest rate of 7.1%:
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Initial period of 15 years: The total deposit amount in 15 years will be Rs 22.5 lakh, on which interest of about Rs 18.18 lakh is added, making the total maturity value about Rs 40.68 lakh.
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First 5 year extension (on completion of 20 years): By extending the account for another 5 years, the total accumulated capital in 20 years becomes Rs 30 lakh, while the total fund increases to approximately Rs 66.58 lakh.
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Second 5 year extension (on completion of 25 years): The total investment during 25 years reaches Rs 37.5 lakh. The total interest received during this entire period comes to around Rs 65.58 lakh, taking the total tax-free fund to a huge corpus of around Rs 1.03 crore (Rs 1,03,08,015).
Two methods and important rules for PPF account extension At the time of maturity, investors have two major options to extend the account:
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Extension with Contribution: If you want to continue depositing money every year even after 15 years, it is mandatory to fill Form H and deposit it in your bank or post office within 1 year from the date of maturity. If money is deposited without submitting the form, no interest will be earned on that additional amount.
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Extension without Contribution: If you do not wish to make any further new deposits, your account automatically extends (by default) for 5 years. In this situation, you will continue to get interest at the fixed rate on your total deposited fund and you can also withdraw money as per your need once in the financial year.
Triple advantage of EEE tax exemption The biggest feature of PPF is its ‘Exempt-Exempt-Exempt’ (EEE) tax category. The amount invested in this gets tax exemption under Section 80C of the Income Tax Act. Additionally, the interest received every year is completely tax-free and the entire fund of Rs 1.03 crore received after 25 years also remains out of the ambit of any tax.
Choosing timely PPF account extension is the most effective strategy for investors who want to build a guaranteed corpus of Rs 1 crore without any risk.