Public Provident Fund (PPF) is a popular government-backed long-term savings scheme, and many people consider this a good investment option for their children’s futures. This government-run savings scheme allows a maximum investment of Rs 1.5 lakh per account during a financial year. Some parents think that by opening a PPF account in their child’s name, they can contribute up to Rs 3 lakh annually (Rs 1.5 lakh + Rs 1.5 lakh). However, this is a misconception.
What is the annual deposit limit in PPF?
According to PPF rules, up to Rs 1.5 lakh can be deposited in a child’s account during a financial year. Whether both parents contribute this amount or one parent contributes, the total contribution in any case should not exceed Rs 1.5 lakh. Deposits exceeding this amount will not earn interest or qualify for tax benefits.
Only the mother or father can operate the account
Only one guardian can open and operate a minor’s PPF account. Typically, either the mother or the father is appointed as guardian. Both parents cannot be separate guardians. According to experts, under paragraphs 3(2) and 4 of the PPF Scheme 2019, only a guardian nominated by a minor can operate a minor’s account.
Tax rules and benefits
Deposits made by parents into a child’s PPF account are considered gifts. Interest is credited to the child’s account, but in some cases, it can be clubbed with the higher-income parent. The good news is that PPF interest is completely tax-free, so there’s no additional tax burden. Tax deductions under Section 80C (up to Rs 1.5 lakh) are available to the parent who actually deposits the money.
Parents should keep these things in mind
- Both parents can contribute to a child’s PPF account, but the total deposit amount should not exceed Rs 1.5 lakh.
- If you want to save more, consider different schemes such as the Sukanya Samriddhi Yojana, mutual funds, FDs, or NSCs.
- Minimum deposit: Rs 500 per annum.
- Maturity of PPF: 15 years; it can be extended further.
- The child can manage the account himself when he turns 18.
PPF is a good option for your child’s education, marriage, or other needs because it offers a safe interest (7.1 per cent) and tax benefits. However, ignoring the rules can lead to more problems than benefits. Experts recommend consulting a certified financial advisor before planning for your child’s future. This will help you choose the right scheme and also provide tax benefits.
