As mentioned at many places in this blog, I consider PPF to be among the best products for retail investors. How good will it be if you can have PPF for your kid’s future?. Indian government has provided individuals with that option. Here we will discuss How to open PPF account for minors and the procedure involved.
Public provident fund or PPF is a Central Government scheme launched under the PPF Act of 1968. The fund is a long term saving plan backed by the government to provide retirement benefits to self-employed personal and workers in the unorganized sector.
Today, PPF is a favorable choice for the millions of Indian citizens. It not only provides security to the investment but also adds interest at almost zero chance of default. Furthermore, it enjoys good tax benefits and offers decent returns in the end.
The choice of opening the account relies on the necessity of the individual. A person planning for a safe, reliable and tax-free long-term investment can choose PPF as an option. The minimum lock-in period is ten years. Applicants can choose either 10 or 15 years as an option during registration.
Must read: Complete PPF guide
Opening PPF account for minors
Public provident fund can be easy access for Indians residing even in remote villages . Applicants can visit nationalized banks and post offices to open a PPF account. It requires filled-up application form and 2 photographs.
Only one PPF account is valid for a person in a lifetime. It is also crucial to state the PAN number in the form. As soon as the formalities are complete, the applicant receives the passbook for the account. It will contain all the transaction details performed from time to time just like your passbook.
Parents and Guardians can open PPF account for minors. While opening the account one should remember the fact that the account holder, in this case, the minor, is the principal holder of the account. You’re only the guardian until he reaches decision making age. Only the minor possess can enjoy the money, which he or she receives at maturity.
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Who can open a PPF account for minors?
Any individual or minor is eligible to open a PPF account. However, parents or guardian of the applicant should countersign the application form. Guardian is permissible in the case of death of the parents and if the living parent is incapable of providing financial support to the child. Furthermore, only one account is possible on the name of the child.
The investment in the PPF account for the minor depends on the choice of the parents and the number of years they wish to block the money. Opening the PPF account at an early age of the child provides the financial assistance when they cross the 18-year age mark to become a major.
Parents can utilize the money for educational needs or extend the account further in five year blocks. They can withdraw the amount according to the need or in a lump sum. However, limitation to the maximum invested amount stands at Rs 1,50,000 in a PPF account per year.
Consider the following illustration that explains the maximum investment of Rs. 1.5 Lakh:
- A father can open PPF account for self, child-1 and child-2.
- The wife can open PPF account for self, child-1 and child-2.
- A father can open PPF account for self and one single child (child-1 or child-2).
- The wife can open PPF account for self and one single child (child-1 or child-2).
The following are the three scenarios that are applicable according to the above conditions:
- Scenario 1
In the first scenario, the father opens one PPF account for self and acts as a guardian for each child (child-1 and child-2). He can claim a maximum of 1.5 lakh under Sec 80C and can deposit the same amount in all three PPF accounts. It means the tax benefit of 1.5 lakh margin is applicable to the entire family.
- Scenario 2
In the second scenario, the mother has one self-PPF account and opens two other accounts to her two children respectively. Therefore, she manages three PPF accounts. At this stage, she can claim a maximum tax benefit of 1.5 lakh under Sec 80C of the Income Tax Act. Moreover, she will have to invest a maximum of one lakh in all the three accounts.
- Scenario 3
In the third scenario, the father has one PPF account for self and another in the name of one child. He can claim a tax benefit of 1.5 lakh and deposit the same amount in the two accounts equally or with varying ratios. The mother has one PPF account for self and another in the name of the other child. She can claim a tax benefit of 1.5 lakh under Sec 80C of Income Tax Act and deposit the same amount in the two accounts.
Tip: So, if you have two children better to attach each children to each parent – one child under you and another with your wife.
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Can I invest more than PPF limit?
Another important question that most people ask is whether they can invest more than Rs 1.5 lakh in the PPF account and do not require the tax exemption. It is imperative to recognize the point that the laws under defined by the PPF state that the maximum amount that one person can can claim deduction is 1.5 lakh rupees. The point to consider is the max investment limit on individual but not individual account.
For example, if the father operates three accounts that include of his children, he is entitled to invest 1.5 lakh for all the three accounts. All the three accounts’ limit here fall under a single individual. The limitation set by the PPF law is for an individual but not on account basis.
At the same time, many people are managing their accounts by investing more than this limit. Although it was possible due to negligence and technological loopholes, it might profess a problem in the future if the government discovers that a person has violated the laws of the PPF. Under such cases, individuals will receive the excess amount at the time of maturity without any interest on the amount.
Many banks and the operating staff are still unclear about the rules and often make a mistake by telling the applicant that the investment amount can exceed max limit. However, it is worth to follow the rules to enjoy the benefits provided by the PPF at the time of maturity.
Moneycontrol article on PPF, here.
Declaration of personal PPF accounts
According to the rules of PPF, it is essential for a person to have only one PPF account. However, he or she can act as guardian to another account of a small. Therefore, it is imperative to provide and report PPF details of the parent or the guardian signing on behalf of a minor. Moreover, the application form contains the declaration column.
According to the form, it is necessary for a parent or a guardian to declare the presence of other PPF accounts legally. If a person tries to surpass the declaration without any information, and in the future, if the government finds the existence of an additional PPF account, the individual receives the excess amount without any interest.
It will be a financial loss on your side, as a person will be blocking an enormous sum of money and receive nothing on it in the end.
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Minor turning to major
There are two scenarios available under this clause:
- Scenario 1:
If the PPF account of the minor matures sooner before child turns 18 years old, it is possible to withdraw the total amount or extend it for another five years with a block. The withdrawn money will become the guardian/parent income.
For example, if the parent/guardian opens PPF account when the minor is one-year-old, he/she receive a lump sum of ten lakh at maturity. Now, if the parent chooses to reinvest the lump sum amount in FD, the returns on it will become the income of the guardian or parent. It adds to their annual income sheet, which becomes taxable.
- Scenario 2:
If the maturity of the PPF account is after the minor turns 18 years old, then the account becomes operational by the applicant. The guardian or the parent will no longer be in-charge. The child will become the heir to the money and can choose his or her decision.
The entire amount becomes the income of the child and any income from investment of a lump sum will become the income of the child in the future.
PPF or Public Provident Fund is beneficial for people who seek a long-term investment. The major advantage of the fund is its freedom from the market conditions. Furthermore, the PPF account for minor will assist in a number of ways in the future.
For example, parents can utilize the money to the education of the child. PPF is beneficial if the existing account of the parent or guardian is not in the exhaustion limit. Therefore, it is important to consider the present limitation before opening a PPF account for minor. If the father is reaching the exhaustion limit, bring the mother into the role will balance the act of investing the stated maximum limit of Rs. 1.5 Lakh.
Credit: This article is an adaptation of Manish’s well-written article on opening PPF account for minors from Jagoinvestor which can be found here.