PPF account is one of the most favorite investment product in India and every person wants to open a PPF account for his minor child. However, there are lots of myths about the rules on opening PPF account for minor kids. In this article, we will look at some of the important points you should know if you want to open a PPF account for your children. We will discuss about tax exemption, limit on the amount you can invest and PPF maturity rules. Here they are
1. Who can open PPF account for minor Child ?
As per PPF rules, a guardian can open Public Provident Fund account for minor child, where guardian is
- Either Father or Mother
- Or incase of Parents are not alive, then any other guardian under the law can open PPF account for minor children, like Uncle, Aunt, Grandmother, Grandfather etc.
- Incase a surviving parent is incapable of acting, then also some other guardian (as mentioned above) can open PPF minor account
2. How much can I invest in PPF account of Minor Child ?
There is a very big confusion around this topic. The most common question is – “Can I invest more than 1 lac in PPF account ?”
As per my understanding and all the readings I did on this topic, I came to know that One can invest maximum of Rs 1 lac in all the combined PPF (Public Provident Fund) account a person has which is self , and for minor children. Example – Imagine there is a Father (F) and Mother (M) and there are two minor children – C1 and C2 . Now follow scenario’s are possible
- Father (F) can open PPF account for himself, C1, and C2
- Wife (W) can open PPF account for herself, C1 and C2
- Father can open PPF account for himself and C1 (or C2) , Wife can open PPF account for herself and C2 (or C1)
Here are these 3 scenarios possible
3. Can I deposit more than 1 lac in PPF account even if I don’t need income tax exemption ?
This is one question which really needs clarity, because a lot of people open PPF accounts for minor children and invest Rs 1 lac in all the Public Provident Fund accounts (Here are articles on opening PPF account with ICICI Bank and with SBI Bank). You don’t get income tax exemption under 80C for more than total Rs 1 lac, which is fine for many people, but are you eligible to get benefits on more than 1 lac invested or not ?
As per PPF rules, you are just not allowed to invest more than Rs 1 lac in your own PPF account or any other PPF account where you are guardian. So if you have 2 kids and you have opened PPF account in their names, you might be thinking that you can invest 1 lac in your own PPF and 1 lac in each kid PPF account so that you can enjoy tax free maturity income later for your kids PPF account . But I dont think its allowed, because as per PPF rules, the 1 lac limit is for an individual , not on per account basis .
But I have been investing more than 1 lac each year, already from many years !
I know, a lot of investors who have been investing more than 1 lac in PPF each year. Due to technological challenges, it might be possible that no one stopped you from doing it, but in future if govt comes to know that you have been avoiding the rules, you might not get any interest on the excess amount, so you might get back only the principal amount at the time of maturity. A lot of Bank staff are also not clear on these rules , here is an incident which was shared by one of our readers
Today I met manager of the branch of bank (State Bank of India) where I have all these three accounts. I narrated the whole scenario. He does not see any problem with the situation. I am really confused as to continue this mode of financial plan or to change it in the light of your clarification regarding the total ppf investment limit.
4. Do I need to declare about my personal PPF accounts at the time of opening minor PPF ?
A person can not have more than 1 PPF account on self name, but they can have it as a guardian for his children , but you need to declare about all your PPF (Public Provident Fund) account as self and for other children at the time of opening a new PPF account with other kids. Because when you fill up the PPF opening form, there is a declaration you need to give about it , here is a snapshot of how it looks like
Which means that legally you need to declare about your other PPF accounts , if you don’t do so, you are breaking the law and if in future its detected that you have been doing what is not allowed, all the money you have deposited in PPF account in excess to the limit allowed will just be returned to you without any interest, and that might be a big blow to your overall planning.
So, a small change you can do in your overall planning is that, you can ask your spouse to open PPF account as guardian for the child, this way, one husband can avail upto 1 lac benefit and wife can also avail upto 1 lac benefit.
5. What happens when the minor kid becomes a major ?
Case 1 : If PPF account matures before the child attains 18 yrs – In this case the guardian can either withdraw the money from PPF or extend it for another 5 yrs block . In this case, the money withdrawn will be treated as guardian income and now when this money is invested somewhere else and any interest income is earned (learn how PPF interest is calculated), then it will be treated as guardian income only. So imagine PPF (Public Provident Fund) account is matured and the kid is still minor (assume you opened the PPF when he/she was 1 yr old) and you get Rs 10 lacs from PPF account, now when you invest this 10 lacs into FD , you get Rs 1 lac as interest in a year, this interest income will be treated as your income (guardian income) and will be added into income and taxed accordingly.
Case 2 : If PPF account matures after the child attains 18 yrs (become’s major) – In this case, the account will then be operated by the child (who has become major) and there will be no guardian. The child will then take his/her own independent decision. In this case, because the PPF account has matured after the child has attained maturity age, all the maturity amount will be income of the child itself, Now any interest income earned on this amount in future will be kid income.
PPF account for minor children is a good idea if you want to build a long term corpus for their education or other requirement. However if you are already exhausting your own limit for PPF (Public Provident Fund), then it might not be that useful because their a limit on the investment amount. You need to see how you want to divide the amount between your own and your kid and whom do you want to make guardian, yourself or your spouse ?
Can you share about your case ? Do you have PPF account for your minor child ?