Imagine a five-year investment option that gives you a fixed tax-free return of 8.7% with a partial withdrawal option that doesn't attract any penalty. Sounds too good to be true? This would not sound abnormal if you knew about the PPF account extension option. After the initial maturity of 15 years, one can extend their PPF account in blocks of 5 years for infinite times. Since all PPF withdrawals are covered under EEE tax regime, premature withdrawals are also exempt from tax, making it an extremely attractive scheme.

You can opt for two kinds of extension —

a) With contribution or

b) Without contribution

The default option is without contribution and automatically kicks in if your account lies dormant for more than a year post maturity . An extension without any further contribution means you continue to earn interest on your accumulated money and the account stays active without you having to make any the yearly investments. You can also willingly opt for this option. Once the account has been classified as "extended without any further contribution". you cannot make any fresh contribution for next five years. However, there is no limit to how much you can withdraw. But only one withdrawal per financial year is allowed.

This can be a good pension investment option post-retirement when you are looking for stable source of regular income. You can withdraw the interest part every year and keep earning a fixed return on the balance. So, the money keeps growing without corroding the principal

If you have income above the taxable limit post-retirement, consider opting for the extension with further contribution to maximize on the tax-benefits. The money ploughed back will not only help you exhaust the tax-saving options for the year but make provision for higher yearly incomes for the near future.

The other option is where you choose to keep contributing to the account on a regular basis during the extension period. However, if you opt for this, you are allowed a withdrawal a maximum up to 60% of the total during the 5-year extension. Meaning, if you have accumulated `25 lakh at the end of 15 years and opt for an "extension with contribution option" you can withdraw up to `15 lakh during the extension period. The amount can be withdrawn as a chunk or in a staggered manner. The one withdrawal per year rule will still apply.

At present PPF earns an investor 8.7% pa tax free interest. Though it does not provide cash flow, since the interest is cumulative, the returns are better than most other risk-free options. It is therefore strongly recommended that investors continue extending the scheme every 5 years after the initial 15 year period. The advice would remain the same for someone whose account has completed the first 15 year period at age 40 or age 50.

The with-contribution extension option is more suitable if you are still earning. Even though the scheme allows you to withdraw it is advised that you keep invested unless it is earmarked for a goal.

For someone who is 40 with already 15 years invested in PPF and does not require the funds for another 10 to 15 years, then both additions to the PPF as well as regular renewals is recommended. But for someone who is 45 or 50 may have life-stage related goals such as children's higher education. In that case you may withdraw the required amount but recommend to keep the account alive as such high guaranteed tax-free returns that too with liquidity benefit is not available anywhere else and it will be an opportunity loss