- Date : 23/06/2020
- Read: 5 mins
Want to efficiently plan ahead for your children’s future? Here’s what should remember when creating an account for a minor.
One of the most popular investment avenues today is the public provident fund (PPF) account, primarily because it offers tax benefits and the assurance that one’s hard-earned money is safe. In fact, when the government introduced it in 1968, the aim was to launch an investment scheme that also came with tax benefits.
Today, so popular has PPF become that not only can we open an account in our names, we can also do so in the names of our spouse and children. However, despite its popularity, people are often unaware of the rules surrounding opening a PPF account for children.
Let us address some of these important issues.
Who can open a PPF account for a minor?
A guardian can open the PPF account for a minor. A person is eligible to act as a guardian if he or she is one of the following:
- The father or mother
- An immediate close relative such as an uncle, aunt, grandmother, grandfather etc, if parents are dead or are incapable to act as guardians
However, the parents cannot open separate accounts for the same minor simultaneously at two different places (example: post office and SBI) by posing as the legal guardian separately.
Related: Comparison of PPF and life insurance: Which comes first?
What is the maximum limit of PPF investment permitted for a minor?
When it comes to the PPF investment limit for a minor, there is often confusion: people often ask whether one can invest more than the permitted limit for an individual, which is Rs 1.5 lakh annually, as two or more individuals are involved (in case there is more than one child).
The answer is ‘'no'; deposits by an individual in their self-account and accounts opened by them on behalf of their minor children as guardian is limited to a combined value of Rs 1.5 lakh in a year under Rule 3(1) of the PPF scheme.
Thus, if a person has his or her own PPF account and becomes the guardian for even five children, the combined limit remains Rs 1.5 lakh.
Related: How to plan for child education expenses
Can a married, unemployed woman open a PPF account as guardian?
Yes, a woman, in her capacity as an individual, can open a PPF account in her name and also be a guardian for her children, if her husband is not a guardian to them. It does not matter whether she has an independent source of income or not. And here too, the combined limit stays fixed at Rs 1.5 lakh.
Related: How goal-setting helps plan your finances
Does this mean a person cannot get tax benefits from PPF investment for a minor?
Not necessarily; despite the cap on combined investment at Rs 1.5 lakh, the law also allows a person the freedom to deposit into one’s spouse’s account, apart from his or her own; this amount, also capped at Rs 1.5 lakh, attracts tax benefits under Section 80C. This way, one can maximise the investment option in PPF. (However, if the person’s spouse has his/her independent income and is depositing into his/her own PPF account, one cannot claim tax benefits for these deposits.)
Can one seek tax benefit for the PPF account of a major child?
As stated earlier, investments in a minor child’s PPF account are eligible for tax benefits. But this is not restricted to them solely; under Section 80C benefits. However, the source of such income has to be of the person claiming the benefit, and not of the major child concerned.
Also, though a person has invested in a major child’s PPF account, all earnings from this investment would be the major child’s income and not that of the person making the deposits.
Related: Secure future parenting – a close look at child plans
What if the amount invested crosses the prescribed limit in the PPF account of depositor + minor/major child?
As indicated, people frequently make this mistake, assuming that since two individuals are involved, the combined limit automatically gets increased to Rs 3 lakh; this is not correct. In such situations, all additional deposits will be returned to the depositor without any interest.
What happens when the minor becomes an adult?
When minor children attain majority before the PPF account matures, they can continue the account on their own, after submitting a revised application form for opening the account. The applicant’s signature on the application form will have to be attested for by the guardian who opened the minor’s account, or by a person acceptable to the Accounts Office.
Related: How prepared are you to meet your child's education cost?
Last words
It pays to start a PPF account for your child early because it comes with a lock-in period of 15 years, which means it will mature around the time he or she turns 18. On attaining this age, it is up to the young adult to continue or end the account. If the account is extended after the age of 18, the young adult will have to deal with a much shorter lock-in period, which could entail a major problem with liquidity.
One of the most popular investment avenues today is the public provident fund (PPF) account, primarily because it offers tax benefits and the assurance that one’s hard-earned money is safe. In fact, when the government introduced it in 1968, the aim was to launch an investment scheme that also came with tax benefits.
Today, so popular has PPF become that not only can we open an account in our names, we can also do so in the names of our spouse and children. However, despite its popularity, people are often unaware of the rules surrounding opening a PPF account for children.
Let us address some of these important issues.
Who can open a PPF account for a minor?
A guardian can open the PPF account for a minor. A person is eligible to act as a guardian if he or she is one of the following:
- The father or mother
- An immediate close relative such as an uncle, aunt, grandmother, grandfather etc, if parents are dead or are incapable to act as guardians
However, the parents cannot open separate accounts for the same minor simultaneously at two different places (example: post office and SBI) by posing as the legal guardian separately.
Related: Comparison of PPF and life insurance: Which comes first?
What is the maximum limit of PPF investment permitted for a minor?
When it comes to the PPF investment limit for a minor, there is often confusion: people often ask whether one can invest more than the permitted limit for an individual, which is Rs 1.5 lakh annually, as two or more individuals are involved (in case there is more than one child).
The answer is ‘'no'; deposits by an individual in their self-account and accounts opened by them on behalf of their minor children as guardian is limited to a combined value of Rs 1.5 lakh in a year under Rule 3(1) of the PPF scheme.
Thus, if a person has his or her own PPF account and becomes the guardian for even five children, the combined limit remains Rs 1.5 lakh.
Related: How to plan for child education expenses
Can a married, unemployed woman open a PPF account as guardian?
Yes, a woman, in her capacity as an individual, can open a PPF account in her name and also be a guardian for her children, if her husband is not a guardian to them. It does not matter whether she has an independent source of income or not. And here too, the combined limit stays fixed at Rs 1.5 lakh.
Related: How goal-setting helps plan your finances
Does this mean a person cannot get tax benefits from PPF investment for a minor?
Not necessarily; despite the cap on combined investment at Rs 1.5 lakh, the law also allows a person the freedom to deposit into one’s spouse’s account, apart from his or her own; this amount, also capped at Rs 1.5 lakh, attracts tax benefits under Section 80C. This way, one can maximise the investment option in PPF. (However, if the person’s spouse has his/her independent income and is depositing into his/her own PPF account, one cannot claim tax benefits for these deposits.)
Can one seek tax benefit for the PPF account of a major child?
As stated earlier, investments in a minor child’s PPF account are eligible for tax benefits. But this is not restricted to them solely; under Section 80C benefits. However, the source of such income has to be of the person claiming the benefit, and not of the major child concerned.
Also, though a person has invested in a major child’s PPF account, all earnings from this investment would be the major child’s income and not that of the person making the deposits.
Related: Secure future parenting – a close look at child plans
What if the amount invested crosses the prescribed limit in the PPF account of depositor + minor/major child?
As indicated, people frequently make this mistake, assuming that since two individuals are involved, the combined limit automatically gets increased to Rs 3 lakh; this is not correct. In such situations, all additional deposits will be returned to the depositor without any interest.
What happens when the minor becomes an adult?
When minor children attain majority before the PPF account matures, they can continue the account on their own, after submitting a revised application form for opening the account. The applicant’s signature on the application form will have to be attested for by the guardian who opened the minor’s account, or by a person acceptable to the Accounts Office.
Related: How prepared are you to meet your child's education cost?
Last words
It pays to start a PPF account for your child early because it comes with a lock-in period of 15 years, which means it will mature around the time he or she turns 18. On attaining this age, it is up to the young adult to continue or end the account. If the account is extended after the age of 18, the young adult will have to deal with a much shorter lock-in period, which could entail a major problem with liquidity.
