Get tax exemption by opening a PPF account in the name of your child? Know the rules and benefits

Public Provident Fund (PPF) is a popular long-term investment vehicle that can help parents create a financial corpus for their children’s future. PPF account can be opened in the name of a minor and this account can be operated by a parent or legal guardian on behalf of the child. When the child turns 18, the account can be transferred to his name after which he can manage it on his own.

Generally, grandparents cannot open PPF accounts for their grandchildren unless they are the legal guardian of the child. Adhil Shetty, CEO, BankBazaar, said, “A child’s PPF account works much like a regular PPF account. It offers benefits like a tenure of 15 years, government-backed returns, annual compounding and partial withdrawals as per the scheme rules. Families often use it as a disciplined and long-term means of saving for future goals like higher education or marriage.”

Why do parents use PPF for children?

PPF is considered an attractive option for secure and long-term financial planning for three main reasons:

• Government Backed Returns
• Tax benefits under section 80C
• tax-free maturity amount

What are the rules related to tax?

The total amount deposited in the parents’ own PPF account and the PPF account of their minor child in the same financial year cannot exceed ₹ 1.5 lakh. Pranab Sai S, tax expert at ClearTax, said, “As per the rules of the PPF scheme, both the interest received on the account and the amount received on maturity are tax-free. However, this tax exemption is not unlimited. Both the amount deposited and the tax benefits claimed should be within the limits prescribed under PPF rules and section 80C. Apart from this, this tax exemption is available only under the Old Tax Regime.”

Eligibility conditions for opening PPF account for minor

To open a Public Provident Fund (PPF) account in the name of a minor, it is mandatory to fulfill the following conditions:

• Only individuals resident in India are entitled to open a PPF account and get tax-free returns under this scheme.
• This account can be opened and managed only by a parent or guardian on behalf of a minor.
• The person operating the account must be either the actual guardian (parent) of the minor or a legally appointed guardian.
• Grandparents are not allowed to open or operate the PPF account of a minor unless they have been appointed legal guardians after the death of the child’s parents.
• It is mandatory to appoint a nominee while opening the account.
• The amount deposited in the PPF account of a minor must be at least ₹500 and cannot exceed ₹1.5 lakh in any financial year. This limit of ₹1.5 lakh applies collectively to the guardian’s own PPF account and all minor PPF accounts managed by him.

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