Opening a PPF account for your child? Here’s what you need to know

As a parent or legal guardian of a minor child, you are always looking for ways to secure their future as well as make provisions for expenses related to education. PPF provides a safe avenue to diversify your savings.

Opening a PPF account for your child? Here’s what you need to know

The Public Provident Fund or PPF is a great tax-saving investment scheme in India. One can make a yearly deposit of up to Rs 1,50,000 in a PPF account and it will be exempt from tax under Section 80C of the Indian Income Tax Act, 1961. What’s more, the interest and the amount of maturity are not taxable either.

The interest rate offered on PPF accounts is on par with many other investments that are not exempt from tax. As PPF accounts have a lock-in period of 15 years, one advantage of opening an account in a minor’s name is that the lock-in period is completed very early in their life. Once the lock-in period is over, a PPF account can be extended indefinitely in blocks of five years, even if you don’t invest any more money in it. 

Related: Using mutual funds to plan for and fund your child’s education

Here are some important things to know before you open a PPF account in your child’s name:

  1. Opening a PPF account in your minor child’s account is beneficial to them (and you) in various ways. The account cannot be opened in joint names; it always has a single holder. As a parent or guardian, you can open the PPF account for your ward at any age. 
  2. Only one parent can open a minor's PPF account because each person can have only one account. Grandparents are not authorised to open an account for a minor except in cases where they are the legal guardians of the minor (such as when the parents are deceased or medically unfit).
  3. All a guardian needs are KYC documents with their photo, age proof of the minor in the form of Aadhaar card or birth certificate, and the initial amount to open the minor’s PPF account.
  4. A minor’s PPF account can be opened by their guardian or parent at any post office or designated bank branch.
  5. A PPF account can be opened with a nominal amount of Rs 500 and the compulsory annual contribution is also a modest Rs 500.
  6. A guardian can claim tax benefit on PPF contributions, both for their own and the minor's account, subject to a maximum of Rs 1,50,000. Any contribution made over this amount does not earn interest or bring tax benefits.
  7. When the minor turns 18, the parent or guardian can turn the PPF account operation over to them by submitting an application.
  8. Loans can be taken from the PPF account from the third year till the end of the sixth year. A loan can be taken from a minor’s PPF account only if the guardian makes a declaration that the said loan is needed for the welfare and use of the minor.
  9. PPF accounts allow withdrawals to be made from the seventh year of operation. Withdrawals can be made from a minor’s account only after providing a declaration that the amount is to be used for the welfare of the minor.
  10. After completion of five years, a minor's PPF account can be prematurely closed by their guardian. This is allowed only under specific situations or conditions, such as for meeting higher education expenses of the minor or for the treatment of a serious or life-threatening illness of an immediate family member. Documentary proof from a higher educational institution or a competent medical authority is needed for proving such a requirement. 
  11. A PPF account cannot be attached by a court in case of debt recovery by creditors. Only in case of outstanding Income Tax can the PPF account funds be acquired for paying off dues.

Related: General Provident Fund interest rate lowered by 7.9%

A PPF account safeguards the amount deposited and offers a decent rate of returns along with additional tax benefits. This explains why it continues to be a much-preferred investment option in India. To explore other safe investment options, take a look at the top 7 fixed-income investments in India.

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