PPF: Both parents investing in Public Provident Fund account for minor child? Alert! You may be committing this mistake

Public Provident Fund or PPF account is one of the most preferred long-term investment tools. Most importantly, it's a central government backed small savings scheme which has zero risk.

Investment by both parents in the PPF account of a minor child is one such area where both parents need to remain vigilant about what the rules say. Photo: PTI

Public Provident Fund or PPF account is one of the most preferred long-term investment tools. Most importantly, it's a central government backed small savings scheme which has zero risk. So, those who don't want to take any risk in their investment, can chose PPF as it helps an investor to claim income tax benefits of up to Rs 1.5 lakh in a financial year under Section 80C of the Income Tax Act as well. However, there are some cases where one needs to know the PPF interest rate accumulation rules otherwise the investment won't be able to generate interest in one's PPF account. Investment by both parents in the PPF account of a minor child is one such area where both parents need to remain vigilant about what the rules say.

Speaking on whether both parents can invest in the PPF account of a minor child, SEBI registered tax and investment expert Jitendra Solanki said, " both parents can invest in the PPF account of a minor child but their net investment in the account of the child and their own PPF accounts in one financial year should not be more than 1.5 lakh. Means, if a person has invested Rs 50,000 in the PPF account of one's minor child, then the person can invest up to Rs 1 lakh in own PPF account so that the net investment ceiling of Rs 1.5 lakh per annum remains maintained."

On what could be the possible penalty to be paid in case an investor violates the PPF annual ceiling rule, another SEBI registered tax and investment expert Manikaran Singhal said, "Since, there are more than one bank in India that can open a PPF account, one investor may invest more than Rs 1.5 lakh in PPF account if the PPF account of the minor child and PPF account of the investor itself is in two different banks. In that case, the investor won't be able to claim income tax benefit under Section 80C of the Income Tax Act."

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However, Singhal went on to add that the amount invested above Rs 1.5 lakh ceiling in any of the PPF accounts won't fetch PPF rate of interest and hence the actual PPF maturity amount will be much lower than the amount PPF calculator shows to the investor at the time of investment.

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