Public Provident Fund: You will be denied Section 80C tax benefit unless you do this
Public Provident Fund (PPF) is one of the several investment options eligible for tax benefit under Section 80C of the Income Tax Act, 1961. The PPF contributions made by self or on behalf of a minor child up to Rs 1.5 lakh per financial year qualifies for deduction in the hands of an individual.
However, PPF deposits made during the year may not be allowed for tax benefit unless the PPF extension rules are followed. As per the Public Provident Fund account rules, if the PPF subscriber after the expiry of 15 years of the PPF scheme fails to exercise the option for continuing the account with deposits, the tax benefit under Section 80C will not be allowed.
PPF is a 15-year scheme and any time after the expiry of fifteen years from the end of the year in which the account was opened, the account can be closed.
To close the PPF account, the account holder will need to apply in Form 3. The closure can be done anytime after 15 years and entire balance along with due interest up to the last day of the month preceding the month in which the account is closed can be withdrawn.
However, if the account holder wishes to continue PPF account after 15 years, along with fresh deposits, the same has to be intimated to the accounts office within one year. To extend the PPF account in a block of 5-years, along with fresh deposits, the account holder has to fill Form 4.
According to the Public Provident Fund Scheme 2019 rules, "No deposits can be made in the account if the account holder fails to give his option to continue the account within one year from the date of maturity. Any deposit made in such account shall be treated as irregular and refunded by the accounts office immediately without any interest."
But, will such deposits be allowed Section 80C tax benefit? The matter was taken up with the Department of Revenue (Central Board of Direct Taxes). The CBDT had clarified that the benefits of Section 80-C of Income Tax Act will not be available on deposits made in PPF account after expiry of 15 years without exercising option for the continuance of the account.
As the PPF account, in such a case, has become irregular, the deposits will not earn tax benefit under Section 80-C of the Income Tax Act unless the account is regularized. For this purpose, the subscriber will have to write to the Ministry of Finance, (DEA) through the Accounts Office for regularizing the account which was continued by him without giving the option.
Therefore, after 15-years, when the PPF account matures make sure to submit Form 4 if you wish to extend the account in a block of 5-years. Failing to exercise this option may leave you without getting section 80C tax benefits on contributions.