Open a minor PPF account to inculcate habit of savings in your child

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Did you know that you can open a Public Provident Fund (PPF) account – the long-trusted guaranteed-return instrument that has become a gold standard for small savers – in the name of your child too?

Usually, one cannot open more than one PPF account. But in case you have a minor child, you can open one in his/her name.

A PPF account can be opened with any post office or bank.

The details of the guardian and minor have to be mentioned in the account opening form. KYC documents of the guardian, photographs and proof of age of the minor would be required to open the account. A minimum contribution of Rs 500 has to be made to open the account.

Apart from the habit of savings that will be inculcated in your child, a PPF account opened early in life can result in big savings for the child.

Assuming 7.1% returns to continue, if one contributes Rs 1.5 lakh in a PPF account for 50 years, the amount that can accumulate is Rs 6.75 crore.

“The principal, interest generated on the investment and the maturity amount are all tax-free, which is a key attraction of the instrument,” added Narayan Jain, an Income Tax consultant.

The account will earn the same returns (7.1%) effective now, but the tax benefit will be capped at Rs 1.5 lakh contribution per annum taking the deposits of both the child and the parent in a particular year.

“You may open a PPF account in your child’s name but total PPF contribution for a financial year should not exceed Rs 1.5 lakh. Else you won’t get tax benefits,” confirmed Jain.

But none else than a parent can open a PPF account in a child’s name, not any other elder in the family. A grandparent can open one in the name of a grandchild but only in case of death of the parents which must be supported with documents.

The individual operating the account on behalf of the minor should be a natural or legal guardian.

A nominee must be registered while opening a PPF account in the name of a minor.

“For tax benefits the maximum limit of Rs 1.5 lakh by an individual shall be inclusive of the deposits made in an individual’s own account and in that opened on behalf of the minor. One can split Rs 1.5 lakh into two accounts in any year to get the full tax benefit,” said Chayan Sen, a certified investment planner based in Kolkata.