PPF Account for Minors

Hedge for your Child's Education Expenses

Even though a necessity, education is fast becoming a luxury for the middle class and the poor. Following a steeply rising curve every year, it has become a daunting task to ensure your child gets a proper education. It has forced people to start pre-planning and look for instruments to provide a safer, more secure tomorrow for their children.

If you surf across the available options, most of them either suffer from low returns or aren't secure enough for us to trust them. The majority of them are also tax-inefficient, further curtailing the feasible options to invest. When nothing goes your way, a PPF (Public Protection Fund) account for minors can suffice you. As per official records, the government added 78,58,394 accounts, out of which 88,550 were minor accounts in 2019-20.

This article discusses eligibility and why you should deliberate about getting a PPF account for minors ASAP.

Who is eligible for opening a PPF account for a minor?

• A resident individual, a minor's legal guardian or natural guardian, can open a PPF account on behalf of the minor.

• Both parents can open a single account for the child, and they cannot operate multiple of them for the same individual under any circumstances.

• You cannot open a PPF account for a minor in joint names.

• The individual must apply for a change of ownership after attaining 18 years of age.

Benefits offered

Here is why opening a PPF account for minors is beneficial for your family –

• Helps save for the future – A PPF account for minors is one of the most secure ways to start saving for your child's future.

• Tax benefit - The government allows a deduction to the tune of INR 1.50 lakh per annum under Section 80C of Chapter VIA. If the parent already has a PPF account, the total deduction cannot exceed INR 1.50 lakh.

• No age bar – There is no restriction on the age limit to open a PPF account for minors.

• Exemption on interest – PPF falls under the EEE category, i.e., the investment amount is exempt to a certain extent. The interest is tax-exempt, and there is no tax on withdrawals.

Information required to open a PPF for minors account

You can open a PPF account for minors with any designated bank branch or post office with the authority to create them. The parent has to provide the following details alongside the account opening form –

• Age proof of the minor

• KYC documents of the parent along with his photograph

• Initial cheque containing the amount that he/she wants to deposit (must be INR 500 or above)

• A filled-up account opening form

• Name of the nominee

Investment size

Irrespective of whether the guardian has his/her PPF account, he/she can invest a maximum of INR 1.50 lakh per annum in the PPF account for minors. The minimum contribution is INR 500. Even if you invest higher than INR 1.50 lakh, you are not eligible for interest on the exceeding amount.

Withdrawal facility

Starting from the seventh year, the depositor has the right to make partial withdrawals from the PPF account. If it is made from the minor's account, the guardian must submit a declaration that the withdrawal will only be used for the minor's benefit.

For extended PPF accounts (post 15 years lock-in period), the account holders can withdraw money once in a fiscal year. The amount of withdrawal depends on the option that you have chosen while availing extension – with or without contribution.

For without contribution accounts, the holder can take out the entire money at once. If you have chosen the other scheme, he can withdraw a maximum of 60 percent of the fund's balance at the beginning of the year for the next five years.

Can parents seek closure of the account before the minor turns 18?

In some specific cases, the parent can request premature closure of the account. Such appeal will only be heard after completion of five years of opening the account. The bank or the post office will only abide by it if the money is utilized for higher education or medical treatment of the minor. In the latter case, the guardian will have to submit supporting documents from a competent medical authority.

Rate of Return

People invest in PPF, not for returns, for security. But it offers higher-than-average returns too, making it a beneficial investment. Currently, the maximum interest rate that you can generate from PPF is 7.1 percent for the current quarter.

It is far better than the paltry savings account rates, but not as good as mutual fund returns. The interest rate fluctuates every quarter but do you care about returns about safeguarding your child's future?

Wrap up

It is always advisable to get a PPF account for minors to cater to your child's future. There can be some who may find the 15-years lock-in cumbersome, but there are reasons behind it. Once the period is over, you can inform the requisite authority to encash the funds or extend it for five years. If there are no immediate needs, an extension is a better option as you get to withdraw some funds every year as per your child's requirement.