i opened PPF while in service and after 15 years also i am continuing with out contributing. may i continue or close it presently i do not need money.

Ans: I would rather suggest something a little more liquid like a BAF fund of agressive hybrid fund where you can start with an swp of 5-6% every year in monthly mode as that will give you some exposure to equity markets and appreciation of capital after inflation effect.

Ans: You will be allowed to withdraw 60% of the balance at the beginning of extended period (block of five years).
It means, let us say the account matured on 1st April 2023 and the available balance is Rs.8.5 Lakhs. Then, you are allowed to withdraw 60% of this Rs.8.5Lakhs during the block period of 5 years. This can be withdrawn either in a single withdrawal or in instalment each year. However, only one withdrawal is allowed in a financial year.

Ans: The penalty for premature closure of a PPF account after 25 years is typically 1% reduction in the interest rate that would have been earned. This penalty is applied from the date of the extension, not from the date of opening the account.

Given your situation where you're facing an emergency and need to withdraw funds, it's important to understand that while PPF offers excellent tax benefits and compounding growth, it's also meant to be a long-term investment with a lock-in period of 15 years. Even after this period, partial withdrawals or loans are allowed under specific conditions, but the full withdrawal before maturity attracts the penalty.

In emergencies, it might be worth considering other available options before prematurely closing your PPF account, such as taking a loan against the PPF balance or exploring other liquid assets you might have. However, if you find that closing the PPF account is your only option, do factor in the penalty and tax implications to make an informed decision.

Always consult with a financial advisor or tax consultant to understand the implications fully and make the best choice for your situation.

Ans: Thank you for your detailed inquiry. Let’s address each of your concerns step-by-step to help you make an informed decision regarding your PPF account.

1. Tax Implications of PPF Interest Income
Tax Exemption Status
Public Provident Fund (PPF) is one of the most tax-efficient investment options in India. The interest accrued on PPF is completely tax-free under Section 10(11) of the Income Tax Act, 1961.

Reporting in Income Tax Returns
Since the interest earned on PPF is tax-free, you are not required to disclose this interest income in your income tax returns. This holds true as long as the PPF account remains active or dormant, and interest continues to be credited.

2. Reactivating Your Dormant PPF Account
Procedure to Reactivate
To change the status of your PPF account from dormant to active, follow these steps:

Submit a Written Request: Visit your bank or post office where the PPF account is held and submit a written request to reactivate the account.

Pay the Minimum Contribution: You will need to pay the minimum annual contribution of Rs 500 for each year the account was dormant. Since your account has been dormant since 2018, calculate the total contribution required (Rs 500 per year x number of dormant years).

Penalty Payment: A penalty of Rs 50 per inactive year is also required.

Submit Required Documents: Provide necessary documents such as your PPF passbook and identity proof.

Documents Required
PPF Passbook
Identity Proof (Aadhar, PAN, etc.)
Written application for reactivation
Once these steps are completed, your account will be reactivated and you can continue making contributions.

3. Closing Your PPF Account
Procedure to Close the Account
If you choose to close your PPF account, visit the bank or post office where your account is held and submit a closure application. You will need to fill out Form C (Application for Withdrawal) and submit it along with your PPF passbook and identity proof.

Tax Implications on Closure
The proceeds from your PPF account, including the principal and interest earned, are completely tax-free. There is no tax deduction on the amount received upon closure.

4. Continuing the Dormant PPF Account
Interest Accrual on Dormant Account
Even if you do not make any further contributions, your PPF account will continue to earn interest until it matures. The interest rate is set by the government and is subject to periodic changes. This interest will continue to be credited to your account annually until the maturity date.

Evaluating Your Options
Reactivating vs. Continuing Dormant
Reactivating: This option allows you to continue benefiting from the tax-free returns of PPF by making the minimum contributions and paying the penalty. It keeps the account active and provides flexibility for future contributions.

Continuing Dormant: If you prefer not to make further contributions but want to keep earning interest, allowing the account to remain dormant is a viable option. The account will continue to grow with interest until maturity.

Closing the Account
If you need immediate access to funds or prefer to invest elsewhere, closing the account is straightforward and tax-efficient. The full amount received will be tax-free.

Strategic Recommendations
Diversify Investments
While PPF is a secure and tax-efficient investment, consider diversifying your portfolio for better returns. Options include:

Mutual Funds: Actively managed mutual funds can offer higher returns compared to PPF.
Equity Investments: For higher risk tolerance, equity investments provide potential for significant growth.
Maintain a Balanced Portfolio
A balanced portfolio includes a mix of fixed-income securities like PPF and higher-growth investments like mutual funds and equities. This strategy optimizes returns while managing risk.

Final Thoughts
Your decision should align with your financial goals and liquidity needs. Reactivating the account provides flexibility, while continuing with a dormant account or closing it can meet immediate financial needs.

Conclusion
Your PPF account offers flexibility and tax-free returns, making it a valuable part of your portfolio. Whether you choose to reactivate, continue as dormant, or close the account, each option has its benefits.

Tax-free Interest: PPF interest remains tax-free.
Reactivation: Pay contributions and penalties to reactivate.
Closure: Tax-free proceeds upon closing the account.
Dormant: Interest continues until maturity.
Make an informed decision based on your financial goals and requirements.

Best Regards,

K. Ramalingam, MBA, CFP,

Chief Financial Planner,

www.holisticinvestment.in

Ans: When faced with the decision of whether to withdraw your Provident Fund (PF) corpus upon job loss or to maintain your PF account by joining another company, it's essential to carefully weigh the pros and cons. This decision can significantly impact your financial well-being in the short and long term. Let's break down the key considerations to help you make an informed choice.

Understanding the Provident Fund
The Provident Fund is a crucial component of retirement savings in India. It offers tax benefits, regular contributions from both employee and employer, and a decent interest rate. Withdrawing the PF corpus can provide immediate liquidity, while keeping the PF account active can ensure continued growth and future security.

Advantages of Withdrawing PF
Immediate Financial Relief
Withdrawing your PF corpus can offer immediate access to a substantial sum. This can be particularly helpful if you face financial difficulties due to job loss. It can provide a cushion to manage expenses and maintain your lifestyle during the transition period.

Debt Repayment
If you have any outstanding debts or loans, withdrawing your PF can help you clear these liabilities. Reducing or eliminating debt can lower financial stress and improve your overall financial health.

Investment Opportunities
Accessing your PF corpus can allow you to explore new investment opportunities. You might consider investing in diverse financial instruments to potentially earn higher returns compared to the PF interest rate. However, this requires careful planning and understanding of investment risks.

Disadvantages of Withdrawing PF
Loss of Retirement Savings
Withdrawing your PF corpus means depleting a significant portion of your retirement savings. This can impact your financial security in your post-retirement years, especially if you don't have other substantial savings or investments.

Tax Implications
Early withdrawal of PF before five years of continuous service can attract tax liabilities. The withdrawn amount becomes part of your taxable income, which could increase your tax burden significantly.

Compounded Growth Loss
By withdrawing your PF, you lose the benefit of compounded growth on your savings. The PF interest rate, compounded annually, helps your corpus grow over time. Withdrawing the amount halts this growth, impacting your long-term savings.

Benefits of Continuing PF Account
Continued Compounded Growth
Keeping your PF account active allows your savings to grow with the power of compounding. Even if you join another company, your new employer's contributions, combined with your own, will continue to enhance your PF balance.

Financial Security
Maintaining your PF account ensures you have a dedicated retirement fund. This financial cushion can be crucial during your retirement years, providing a steady source of income when you are no longer earning a regular salary.

Employer Contributions
When you join a new company, both you and your employer will continue contributing to your PF. This not only increases your savings but also adds to your financial stability over time.

Considerations Before Making a Decision
Age and Retirement Plans
At 55 years old, your retirement is relatively close. Withdrawing your PF now could impact your retirement plans. Assess your retirement goals and determine if you have sufficient savings and investments to support your desired lifestyle post-retirement.

Current Financial Needs
Evaluate your immediate financial needs versus your long-term goals. If you have other savings or sources of income, it might be wiser to keep your PF account active. However, if you are in urgent need of funds, withdrawing might be necessary.

Job Prospects
Consider the stability of your next job. If you are confident about securing a stable job with a steady income, keeping your PF account active is beneficial. However, if there is uncertainty, having immediate access to your PF corpus might provide financial security.

Managing Your PF and Future Investments
Diversification
Whether you decide to withdraw your PF or keep it active, diversification of your investments is crucial. A balanced portfolio can mitigate risks and enhance returns. Consider a mix of equity, debt, and other financial instruments based on your risk tolerance and investment horizon.

Consulting a Certified Financial Planner
Engaging a Certified Financial Planner (CFP) can provide you with tailored advice based on your unique financial situation. A CFP can help you create a comprehensive financial plan, ensuring your short-term needs and long-term goals are balanced effectively.

Regular Review
Regularly reviewing your financial plan and investment portfolio is essential. Life circumstances and financial markets change, and your strategy should adapt accordingly. Periodic reviews with a CFP can help you stay on track.


Losing a job at 55 can be challenging, but it's commendable that you are taking proactive steps to secure your financial future. Your diligence in considering the best options for your PF corpus demonstrates a responsible approach to financial planning. Remember, every decision has its pros and cons, and it's important to choose what aligns best with your overall financial goals.

Conclusion
Deciding whether to withdraw your PF corpus or keep your PF account active upon joining another company requires careful consideration of various factors. While immediate withdrawal provides liquidity, it can impact your long-term financial security. Conversely, maintaining your PF account ensures continued growth and future financial stability. Assess your immediate needs, retirement goals, and job prospects before making a decision. Consulting with a Certified Financial Planner can provide valuable guidance tailored to your unique situation.

Best Regards,

K. Ramalingam, MBA, CFP,

Chief Financial Planner,

www.holisticinvestment.in