Planning to deposit money into PPF accounts opened in your children's names? Know the rule regarding the ₹1.5 lakh combined limit..

PPF Account Limit for a Minor Child: Are you planning to open a Public Provident Fund (PPF) account in your child's name to secure their future, higher education, or marriage? If so, you should be aware of a crucial rule regarding income tax and PPF.

Parents often mistakenly believe they can deposit an additional ₹1.5 lakh into their child's PPF account; however, income tax rules dictate otherwise. The combined deposit limit for your own PPF account and your child's PPF account is capped at ₹1.5 lakh per financial year. Let’s break down the math behind this rule in simple terms.

Can both parents deposit ₹1.5 lakh each into the child's PPF account?

The answer is: Absolutely not. According to PPF regulations, the total deposit across all PPF accounts held by the parents and their minor child in a single financial year cannot exceed ₹1.5 lakh.

If the mother deposits ₹1 lakh into the child's PPF account, the father can deposit only ₹50,000 into that same account during the same financial year. If both parents were to deposit ₹1.5 lakh each (totaling ₹3 lakh), it would violate PPF rules, and no interest would be earned on the excess amount.

What is the rule if the parents also have their own PPF accounts?

If you hold a PPF account and also manage a PPF account for your minor child, the ₹1.5 lakh limit applies jointly to both accounts.

If you deposit ₹1 lakh into your own PPF account during the year, you can deposit a maximum of only ₹50,000 into your child's PPF account. A child's PPF account does not provide you with a separate, additional ₹1.5 lakh limit for tax exemptions.

Important Kerala High Court Ruling: What to do when the child turns 18? A case from the Kerala High Court illustrates the importance of understanding the rules governing PPF accounts opened for minors. In this instance, a mother opened PPF accounts in her children's names in 1999 and continued depositing funds into them even after the children had attained the age of majority (specifically, until 2005 and 2007).

Upon examining the regulations and account statements, the court ruled that the status of the account changes once the child becomes a major. It is mandatory to transfer the PPF account to the child's name independently upon their turning 18; once transferred, the child becomes entitled to their own separate investment limit of ₹1.5 lakh.

**Key Points Regarding Tax Benefits and Interest**

**Section 80C Deduction:** Deposits made into a PPF account qualify for a tax deduction under Section 80C of the Income Tax Act. However, this deduction is subject to an overall limit of ₹1.5 lakh.

**Tax-Free Interest:** The interest earned on PPF deposits and the maturity proceeds are entirely tax-free (falling under the EEE category).

**Loss on Excess Deposits:** If you inadvertently deposit an amount exceeding the combined limit, no interest will be earned on the excess amount, and the surplus funds will be refunded without accruing any benefits.

**Useful Advice for Parents**

Opening a PPF account in your child's name is an excellent financial decision; however, keep track of the total deposits made across both your own and your child's accounts. Ensure that the combined contribution to both accounts remains within the ₹1.5 lakh limit for each financial year to seamlessly avail yourself of the full tax benefits and interest earnings.

Disclaimer: This content has been sourced and edited from Money Control. While we have made modifications for clarity and presentation, the original content belongs to its respective authors and website. We do not claim ownership of the content.