Parents can secure their child’s future and help them get a leg up financially. Here, a government-backed savings scheme, such as the public provident fund, is a safe, long-term bet. Offering 7.1% interest rate this quarter, PPF can help with your child’s big expenses — be it for healthcare, marriage, education or other aspirations.
Want to invest in PPF for minors? Here’s how
Everyone is allowed one PPF account, which can be opened with a bank or the post office. For children and minor applicants, a parent or guardian can open a joint PPF account, which must be converted upon the account holder’s 18th birthday. Here’s how to open an account for a minor:
- Fill out and submit the application to your preferred bank or closest post office.
- This will include KYC documents such as your Aadhaar Card copy (or your child’s), proof of residence, and a passport-size photo.
- You can also open a PPF account directly through your bank via online or mobile banking, with KYC.
- Once the minor accountholder attains majority (reaches 18 years of age), they must submit a revised application form and documents to the bank or post office.
- Notably, while the original tenure of PPF accounts is 15 years, this can be extended in five-year blocks indefinitely through continuation requests submitted to the bank or post office.
₹3 lakh per year? What can parents invest tax-free in child’s PPF?
Investors sometimes misunderstand the tax-free investment limits when depositing amounts into their child’s PPF account. While you may be confused that each parent can individually invest ₹1.5 lakh each in your child’s PPF account, this mathematically raises the annual contribution to ₹3 lakh — way above the tax-free ₹1.5 lakh cap.
According to PPF rules, the total tax-free contribution is ₹1.5 lakh per financial year, and this includes deposits made to own and children’s accounts combined. Thus, a minor’s PPF account cannot receive more than ₹1.5 lakh in total contributions (from both parents combined) in a given tax year, regardless of who contributes.
Check the scenarios/illustrations below for how the limit functions:
| Scenario | Father’s input | Mother’s input | PPF total | Tax free |
|---|---|---|---|---|
| Both parents invest ₹1.5 lakh each in child’s account | ₹1.5 lakh | ₹1.5 lakh | ₹3 lakh | No |
| Both parents equally divide contribution within limit | ₹75,000 | ₹75,000 | ₹1.5 lakh | Yes |
| Father invests in own + child’s account | ₹1 lakh (own) + ₹50,000 (child) | ₹1.5 lakh (own) | ₹50,000 | Yes |
| Total exceeds contribution limit | ₹1 lakh | ₹1 lakh | ₹2 lakh | No |
Under income tax laws, contributions made to a child’s PPF account are treated as a “gift”. Further, interest earned is credited to the child’s account but may be clubbed with the higher-earning parent’s income as per tax rules.
However, as PPF interest is completely tax-free, it usually does not add any tax burden for the parent. Thus, regardless of one or two parents / guardians’ contributions, the total deposit in a child’s PPF account cannot exceed ₹1.5 lakh in a given financial year. Acknowledging and understanding this rule can help in avoiding excess deposits and ensure proper tax compliance.
Gift your child their PPF account at 18 years of age
Here’s how much total annual contributions of ₹50,000, ₹1 lakh and ₹1.5 lakh (tax free limit each financial year), made either as lumpsum or monthly credits, can generate for your child over an 18-year period. We calculate —
- ₹1,50,000: Lumpsum investment of ₹1.5 lakh annually for 18 years at interest rate of 7.1% totals to ₹27 lakh and earns interest of more than ₹28.14 lakh, for total maturity corpus of over ₹55.14 lakh at age 18 for your child.
The same ₹1.5 lakh can also be invested as contributions of ₹12,500 each month for a period of 18 years, instead of lumpsum, for the same maturity amount.
As an adult account holder, if they choose to continue the PPF with the same annual or monthly contribution for another 42 years, they will have accumulated ₹75 lakh and earned interest of ₹6 crore, for combined 50-year maturity corpus of over ₹6.75 crore at 60 years of age for retirement.
- ₹1,00,000: Lumpsum investment of ₹1 lakh annually for 18 years at interest rate of 7.1% totals to ₹18 lakh and earns interest of more than ₹18.76 lakh, for total maturity corpus of over ₹36.76 lakh at age 18 for your child.
The same ₹1 lakh can also be invested as contributions of ₹8,340 each month for a period of 18 years, instead of lumpsum, for the similar maturity amount.
As an adult account holder, if they choose to continue the PPF with the same annual or monthly contribution for another 42 years, they will have accumulated ₹50 lakh and earned interest of ₹4 crore, for combined 50-year maturity corpus of over ₹4.50 crore at 60 years of age for retirement.
- ₹50,000: Lumpsum investment of ₹50,000 annually for 18 years at interest rate of 7.1% totals to ₹9 lakh and earns interest of more than ₹9.38 lakh, for total maturity corpus of over ₹18.38 lakh at age 18 for your child.
The same ₹50,000 can also be invested as contributions of ₹4,200 each month for a period of 18 years, instead of lumpsum, for the same maturity amount.
As an adult account holder, if they choose to continue the PPF with the same annual or monthly contribution for another 42 years, they will have accumulated ₹25 lakh and earned interest of ₹2 crore, for combined 50-year maturity corpus of over ₹2.25 crore at 60 years of age for retirement.
Disclaimer: This story is for educational purposes only. We advise investors to check with certified experts before making any investment decisions.
