PPF investment benefits for minor
One of the benefits of the PPF account is its 15-year lock-in period. Therefore, if you open a PPF account for your kid at an early stage in his/her life, then by the time he starts working or becomes adult (i.e., turns 18 years of age), the account would have matured or be close to maturity. And once the child becomes a major, i.e., turns 18 years of age, the operation of account has to be handled by him/her, i.e., his/her signature will be required to withdraw or deposit money. Once your kid has become an adult and the account has completed its mandatory lock-in period of 15 years, he/she can decide whether to close the account or extend it.
The advantage that your kid will get in the above case is that he/she will get to use a PPF account with a shorter lock-in period as compared to the normal lock-in of 15 years that a person would face on opening a new account.
This is beneficial because currently the PPF account has an EEE or Exempt-Exempt-Exempt status, there is a tax relief on contribution, interest earned on the principal amount. Any withdrawal after the initial 15 years lock-in period is also exempt from taxation.
However, do keep in mind that the total amount you can deposit in both the accounts (i.e., yours and your child's) together should not exceed Rs 1.5 lakh in a financial year as per the current laws. This is also the maximum amount that can be put into a single PPF account in a financial year while availing the tax exemptions under Section 80C.
Consequently, PPF is considered a good investment avenue but due to its long lock-in period of 15 years, liquidity ends up being a problem. This drawback will be removed/reduced to a large extent for your child in the situation described above.
Extension of PPF account
Your child can choose whether he/she wants to continue the PPF account after the 15-year maturity period. He/she can either close the account or can be extended it by ‘n’ number of times for a block of five years each. In a nutshell, it will provide an option to your child on whether to keep on earning interest or withdraw the entire amount.
If he wishes to continue the account without any future contribution, then the existing balances of the account will continue to earn interest as applicable. Remember according to current tax laws, the interest earned from the PPF account is exempted from tax.
On the other hand, if the account is extended with fresh deposits, then not only will it help him/her develop the habit of saving from the first job onwards, but he/she will also be eligible to claim the tax benefit under section 80C of the Income Tax Act on the fresh deposits.
Partial withdrawal facility from PPF
Partial withdrawal facility after maturity of an account is also different. While partial withdrawal is allowed from the 7th year, the withdrawal rules for extended PPF accounts allow individuals to withdraw money once in a financial year but it all depends whether your child has extended the account with a contribution or without it. In case, a PPF account has been extended without contribution, individuals will be able to withdraw any amount depending on the balance. However, if contributions are being made, only 60 per cent of the amount can be withdrawn during the fresh five-year lock-in period. These withdrawals can prove handy for your child and can help in supporting them during their first job or final year of education.
Things to remember Post maturity of the minor PPF account
After the maturity of the PPF account, remember to inform your account office where your PPF account is held before the end of one year from the maturity date, whether you wish to extend it with fresh deposits. If you do not do this the account will automatically be considered extended without any fresh contribution.