Once your account is discontinued, you will only be able to withdraw the full amount at maturity
It has been a good year for the Public Provident Fund (PPF), with an annual post-tax return of 7.7%. Interest rate aside, the tax benefits and stable returns PPF provides makes it a good investment. So, if you don’t have a PPF account, you may want to open one now. And if you already have one but are not maximising the investment, you can start doing so.
However, if you failed to contribute to your PPF account for a year, it would have become dormant. In order to keep your account active, you need to make a contribution of at least ₹500 every year.
It’s not uncommon for people to forget investing in their PPF, especially if they invest in a lot of other instruments. This results in the account becoming dormant, and a penalty being imposed. You also stand to lose certain benefits you can avail as a PPF subscriber.
To reactivate a dormant PPF account, you have to visit the bank branch or post office where your account is held, and submit a written request. For each financial year that your account has been dormant, a penalty of ₹50 is levied, which must be paid to initiate the reactivation process. You also have to pay the minimum deposit amount of ₹500 for each year your account has been inactive. Once the verification process is carried out, your PPF account will be reactivated.
What you lose
While deactivation of your account doesn’t mean you will lose your money, you will no longer be able to make contributions to the account.
You will lose out on benefits and facilities available to subscribers with active accounts. For instance, a subscriber with an active PPF account is eligible to take a loan of 25% of the balance amount available, from the third to the sixth financial year after opening the account. If your account is deactivated, this facility will not be available to you. The partial withdrawal facility, which allows subscribers to access part of the savings in their PPF accounts after the completion of the seventh financial year since account opening, is also not available to those with a dormant or deactivated account. Deactivated accounts are also ineligible for premature closure.
Once your account is discontinued, you will only be able to withdraw the full amount at maturity, which is 15 years after the account is opened. While you can’t contribute to the account once it’s discontinued, the amount already deposited in it will continue to earn interest till maturity. In order to withdraw the accumulated amount, you must pay the penalty accrued for the period of deactivation.
Another advantage that you would be sacrificing if you don’t contribute to PPF is tax benefit. The scheme has an EEE or ‘exempt, exempt, exempt’ status, which means that it provides subscribers with deduction benefit up to ₹1.5 lakh under Section 80C on deposits and tax-free interest and returns.
Tax benefits aside, PPF offers returns backed by the government, and given its long tenure, it can help you make the most of compounding and build a sizeable corpus for your long-term goals like retirement. So if you have let your PPF account become dormant, get it revived as soon as possible.