ET BureauThe PPF is backed by the government and provides safety, good returns and tax benefits. As per the rules, the guardians of a minor child can open a PPF account on his behalf and the joint account is in the name of the guardian. However, both Jatin and Richa cannot open PPF accounts on behalf of their son; only one of them can do so.
An individual can invest a maximum of Rs 1.5 lakh in the PPF account in a financial year. So, if Jatin chooses to be the guardian for his minor son’s PPF account, both his account as well as that of his son will have a collective annual investment ceiling of Rs 1.5 lakh. At the time of opening the account, the guardian will have to declare the details of his individual PPF account and the two accounts will then be linked by the bank or post office.
Several people invest more than the maximum permissible limit for individuals via their minor children’s PPF accounts. This is probably due to the technological challenges of identifying various accounts. However, this is against the rules and no interest is payable on the excess amount deposited. At maturity, they might get back only the principal amount.
Besides, Rs 1.5 lakh is the maximum limit for claiming deduction under Section 80C of the Income Tax Act. It is likely that the Mehtas have investments other than the PPF that are eligible for tax deduction. The payment from the PPF account is exempt from tax under Section 10(11) of the Income Tax Act. Therefore, the Mehtas can earn taxexempt incomes from both accounts, but claim only the portion that is required for deductions under Section 80C.
Opening PPF accounts for minor children is a good option for building a long-term corpus for their education or other requirements. However, the Mehtas should keep in mind the above-mentioned rules and their tax planning before going ahead with it.
The content is courtesy Centre for Investment Education and Learning (CIEL). Contributions by Girija Gadre, Arti Bhargava and Labdhi Mehta.
An individual can invest a maximum of Rs 1.5 lakh in the PPF account in a financial year. So, if Jatin chooses to be the guardian for his minor son’s PPF account, both his account as well as that of his son will have a collective annual investment ceiling of Rs 1.5 lakh. At the time of opening the account, the guardian will have to declare the details of his individual PPF account and the two accounts will then be linked by the bank or post office.
Several people invest more than the maximum permissible limit for individuals via their minor children’s PPF accounts. This is probably due to the technological challenges of identifying various accounts. However, this is against the rules and no interest is payable on the excess amount deposited. At maturity, they might get back only the principal amount.
Besides, Rs 1.5 lakh is the maximum limit for claiming deduction under Section 80C of the Income Tax Act. It is likely that the Mehtas have investments other than the PPF that are eligible for tax deduction. The payment from the PPF account is exempt from tax under Section 10(11) of the Income Tax Act. Therefore, the Mehtas can earn taxexempt incomes from both accounts, but claim only the portion that is required for deductions under Section 80C.
Opening PPF accounts for minor children is a good option for building a long-term corpus for their education or other requirements. However, the Mehtas should keep in mind the above-mentioned rules and their tax planning before going ahead with it.
The content is courtesy Centre for Investment Education and Learning (CIEL). Contributions by Girija Gadre, Arti Bhargava and Labdhi Mehta.
(Your legal guide on estate planning, inheritance, will and more.)
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