PPF Account is considered as one of the favorite investment for many of us as it gives tax benefits and also the safety mentality. However, many of us open PPF in our name, minor kids name and also in wife name. But hardly few know what are the rules, tax benefits and tricks you can use with PPF Account for Minor and Wife.
# Who can open the PPF Account for Minor and Wife?
A guardian can open the PPF account for a minor child. Whereas, in the case of a wife, as she is major, she can open the account in her name directly and also be eligible to act as a guardian for your kids.
The guardian in case of minor should be anyone of the below.
-Father or Mother
-If both parents not alive, then any other guardian under the law can open PPF account for minor children, like Uncle, Aunt, Grandmother, Grandfather etc.
-If surviving parent not capable of to act, then the above said a relative of minor child open account.
Do remember that Both the parents cannot open a separate account for the same minor. Only either father, mother or guardian (in case parents not alive), can open ONE account in the name of a minor.
Hence, opening PPF account in Post Office with being you as guardian and opening another account in SBI bank with your wife as guardian on the same child is not allowed. You may open like this. If at any point of time, it got noticed, then you will loose the entire interest part on the another account. Hence, it is always best to follow the rule.
# PPF Account for Minor and Wife -How much is the maximum limit?
Let us now discuss the issue separately as PPF Account for Minor and PPF Account for Wife.
a) PPF Account For Minor
There is a huge confusion among many when it comes to the limit of investing in PPF in a family. The rule states like below.
“The limit of deposit of Rs. 1,50,000 in a year by an individual in his self-account and accounts opened by him on behalf of his minor(s) of whom he is the guardian is COMBINED under rule 3 (1) of the Scheme. This limit is separate for account opened by the HUF or an association of persons or body of individuals vide rule 3 (2) of the scheme.“.
Hence, let us assume that you have 5 children. If you have your own PPF account and also you became guardian for all 5 children, then the COMBINED limit of your account and your 5 children account is Rs.1,50,000 ONLY.
b) PPF Account For Wife
Whether your wife has her own earning source or not, as she is an individual, can open the account in her name and also be a guardian for kids where you are not a guardian.
Again, in her case also, the combined limit for her and for the accounts where she is guardian stands yearly maximum limit of Rs.1,50,000 only.
Now as per the rule, the total deposit into Self+Minor account should not cross Rs.1,50,000 a year. However, one is free to deposit into one’s spouse account. Hence, by doing this trick, you can maximize the investment option into PPF.
Now let us take an example of how much maximum one can invest in PPF including his, spouse and minor kids account.
Let us assume Preetam, his wife Dhanya and their two minor children Jeevan and Prachi. How much and in what way they can invest in PPF to the maximum? Let me explain the same through this image.
You notice from above example that being guardian to all your kids will not help you to maximise the investment. However, if you have two kids, then you and your wife being guardian to individual kids will makes you beneficial and maximizing the investment option into PPF.
PPF Account for Minor and Wife -Tax Benefits
From above rules, it is clear that the maximum limit to invest for an individual along with the accounts where he is a guardian is Rs.1,50,000 only. But what are the tax benefits if we have PPF Account for Minor and Wife name?
As you all know, PPF is E-E-E (Exempt-Exempt-Exempt) product. This means whatever the money you invest in your PPF account can be claimed for tax benefit under Sec.80C. The interest income during the tenure of the product is tax-free. Same way whatever the amount you receive from PPF at maturity is purely tax-free.
However, what Sec.80C refers is that any investment done in PPF account in the name of Self/Spouse or Child (Major or Minor) is eligible for deduction.
Here, I will divide the case into three categories.
a) PPF Account of Self+Minor Child
Whatever the contribution you do towards your own PPF and to the minor child contribution (where you are guardian) can be directly claimed for deduction under the Sec.80C limit for up to Rs.1,50,000.
Do remember that you may have your one PPF account but may be a guardian for 3 kids PPF account. But the combined limit for tax deduction under Sec.80C is ONLY Rs.1,50,000 (irrespective of the number of kids or number of the accounts where you are guardian).
b) PPF Account of Self+Wife
As per Sec.80C eligibility conditions, any investments you did for self or spouse is also eligible for deduction. But again the combined limit for deduction is only up to Rs.1,50,000. However, if she has her own earnings and if she contributing for her own PPF, then you can’t claim on behalf of her investment. The investment must be from your income. Because the eligibility condition for deduction under Sec.80C states as below.
“the aggregate amount of the deductions of income so allowed in respect of the previous year or years preceding such previous year, shall be deemed to be the income of the assessee of such previous year and shall be liable to tax in the assessment year relevant to such previous year.”
Assume that your wife is not earning or she does not have any of income source. Then you can invest in her PPF account. However, as the source of investment is from your income, the clubbing provisions apply here.
Let us say Mr.X donate Rs.1 lakh to his wife Mrs.X. Then for Mrs.X, the amount is not taxable. But what if she invests this Rs.1 lakh in Bank FD and earns Rs.10,000 on this in a year? Is it the income of Mr.X or Mrs.X? In such situation clubbing of the income, provisions will come into the picture. Such interest income of Rs.10,000 will be clubbed with Mr.X and he has to pay the applicable tax.
However, as I already stated above, PPF is the E-E-E product. Hence, even if you invest in your wife’s PPF account and any interest earning from such PPF is tax-free. Hence, at the end, there is no tax liability for you.
Instead, you can claim the tax benefits under Sec.80C if the source of such investment is from your income.
c) PPF Account of Self+Major Child
As per Sec.80C benefits, if you invest in your major child PPF account, then also you can claim the tax benefits. But the source of such income should be from your income. If the source of income of such investment is from your major child, then you are not eligible to claim the deduction under Sec.80C.
Here, the clubbing of the income rule not apply. Hence, assume you invested in your major child PPF account, then any earning from this investment should be your major child’s income (even though PPF interest is tax-free and he has no tax liability) but not your income.
What if you invested more than the prescribed limit in PPF?
Many do such mistakes. They feel that their own PPF account and their minor kids PPF account combined limit is not Rs.1,50,000 but Rs.3,00,000. Because they feel each PPF account will come with a maximum limit of Rs.1,50,000. In such situation, there is no such monitoring tool either with Bank or Post Office. Hence, they also accept without any cross checking.
Any such additional deposit which is beyond the rule will be returned to you without paying you a single rupee of interest on this. Hence, it is always best to follow the rules.
What to do when the minor kid becomes major?
When the minor attains majority before the maturity of the PPF account, then he will himself continue the account thereafter. He will submit a revised application form for opening the account to the Accounts Office. His signature on the application form will be attested by the guardian who opened the account of the minor or by a respectable person is known to the Accounts Office.
Refer our earlier posts related to PPF:-
- All about Public Provident Fund (PPF)
- PPF-Loan and Withdrawal
- PPF-When to contribute to get higher returns?
- Excel PPF Calculator-Calculate goal, loan or withdrawal amounts
- How to transfer PPF Account from Post Office or Bank to another Post Office or Bank?
- 15 Rules of availing Loan against PPF (Public Provident Fund)
- PPF withdrawal rules & options after 15 years maturity
- Premature closure of PPF account – New Rules 2016