Public Provident Fund (PPF) is a popular long-term savings option to build a tax-efficient corpus. For parents looking to give their child a head start in their financial journey, a PPF account can be opened and operated by a parent or a legal guardian on behalf of a minor.
With a 15-year lock-in period and (Exempt-Exempt-Exempt) tax status, it offers tax benefits on contributions, interest earned and maturity proceeds. A minor’s PPF account also comes with the same sovereign-backed safety and tax benefits as a regular account under the scheme.
However, a common question among taxpayers may arise on whether both parents can contribute to their child’s and separately claim tax deductions on those contributions. Here are the tax rules and everything else an investor should know before making a contribution in the scheme.
How much can a parent contribute in their child’s PPF account?
As per specified rules, both parents cannot invest ₹1.5 lakh each in their child’s PPF account. If they do, the total annual contribution will be raised up to ₹3 lakh, which is not permitted. Just like a regular PPF account, a minor’s account cannot receive more than ₹1.5 lakh in total contributions in a financial year, irrespective of whether the money is deposited by one parent or both.
An individual can contribute only up to ₹1.5 lakh per financial year across their own PPF account and the accounts of their minor child. In simple terms, if a parent contributed to both their own PPF account and their child’s PPF account, the combined contribution should not exceed the threshold.
Any contribution beyond the prescribed limit does not qualify for tax benefits and may not earn interest under the PPF rules.
Can both parents claim deductions?
No, both parents cannot claim deductions for the same child’s PPF account. The deduction is strictly limited to the parent officially registered as the legal guardian on the account.
The amount contributed to a child’s account counts against the guardian’s own overall ₹1.5 lakh deduction limit under Section 80C, though this benefit is only available under the old tax regime.
How to open a PPF account for a minor
A parent can open a PPF account for a minor at a post office or with an authorised bank offering facilities related to the scheme. The account must be opened and operated by the child’s parent or legal guardian until the minor attains adulthood (18 years of age), post which it can be handed over.
To open a PPF account, you will also need to fill and submit the application to your preferred bank or closest post office along with documents, including Aadhaar Card copy, proof of residence, and a passport-size photo. The same can be done directly through your bank via online or mobile banking, with KYC.
In order to convert the account from minor to major status once your child reaches 18 years of age, you must submit a revised application form with the necessary documents to the bank or post office.
A person must make a minimum contribution of ₹500 at the time of opening the account. Deposits can be made as a lump sum or in up to 12 installments, and must be in multiples of ₹100.
Eligibility criteria for opening a PPF account for a minor
To open a PPF account in the name of a minor, there are certain conditions that the account holder must meet. These include:
- Individuals must be Indian residents to open their account under PPF and avail tax-free returns
- Only one of the parents or legal guardians can open the account
- Individual operating the PPF account on behalf of the minor should be a natural or legal guardian
- PPF account cannot be operated by the grandparents of the minor child unless they are legal guardians after the death of the parents
- A nominee must be registered while opening the PPF account
Key things to know before considering the scheme
The scheme currently offers an interest of 7.1% per annum, which is revised on a quarterly basis by the Ministry of Finance. It’s popular among conservation investors as it is backed by the government and also gives assured returns.
Though the original term of the account is for 15 years, it can be extended in blocks of five years, as many times as your want. During extensions, you can choose to not add any more contributions. Each extension is not automatic, and you will need to submit a request to the bank or post office to continue the account for another five years at end of term.
Before making any investments for your children, it is important to sit down with a certified financial advisor and plan your child’s future education, health, and overall well-being diligently and choose the best scheme that is suitable for your child. There are several other investment schemes which can be opened for children, which includes National Savings Certificate (NSC), Sukanya Samriddhi Yojana (SSY), and National Pension System (NPS) Vatsalya.