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Thursday, August 08, 2013

Opening Multiple PPF Accounts in India

There is widespread confusion regarding how many PPF accounts can be opened by an individual on his / her name or in the name of their minor children? How much money can be invested in these accounts in one financial year? How much tax can be saved by opening multiple accounts?..Read on..

What is a Public Provident Fund (PPF) Account
PPF is a savings-cum-tax-saving instrument in India. It also serves as a retirement-planning tool for many of those who do not have any structured pension plan covering them. 

Why this post?
Off late, there have been lot of queries from my colleagues and multiple freedom seekers as regards to whether we can invest in PPF in the name of our family members over and above what we invest in our own account. So, i thought of clarifying the same via this post.

Who all can open a PPF Account?
  • Individuals who are residents of India are eligible to open an account under the Public Provident Fund scheme.
  • A PPF account may be opened under the name of a minor by his/her legal guardian or in the name of the spouse. However, each person is eligible for only one account under his/her name.
  • Non-resident Indians (NRIs) are not eligible to open an account under the Public Provident Fund Scheme. 
  • However a resident who becomes an NRI during the 15 years' tenure prescribed under Public Provident Fund Scheme, may continue to subscribe to the fund until its maturity on a non-repatriation basis.

How many accounts can be opened?
  • Only one account can be opened in one name. 
  • If two accounts are opened by the subscriber in his or her name by mistake, the second account will be treated as an irregular account and will not carry any interest unless the two accounts are amalgamated with the approval of the Ministry of Finance (DEA). For this purpose the subscriber will have to write to the Under Secretary-NS Branch through the Accounts Office giving detail of each account. 
  • An individual can open only one account in his name either in the post office or in the bank and he has to declare this in application form for opening the account. Persons having a PPF account in the bank cannot open another account in the post office and vice-versa. 
  • A Public Provident Fund account on behalf on a minor can be opened by either father or mother. Both the parents cannot open a separate account for the same minor. An individual may open one PPF account on behalf of each minor of whom he is the guardian.

How much can you deposit?
Every adult individual in a family can open a PPF account. However, below are the guiding rules when investing money in any of the PPF accounts:
  • If you open a PPF account in the name of your minor child (son or daughter) and you are the guardian for that account, then the total annual investment allowed in these two or three accounts put together is INR 1.5 Lacs.
  • If contributions in excess of INR 1.5 Lacs are made during a year by the subscriber, the deposits in excess of INR 1.5 Lacs will be treated as irregular subscriptions and will neither carry any interest nor this excess amount will be eligible for rebate under Section 80-C of the Income Tax Act. This excess amount will be refunded by the Accounts Office to the subscriber without any interest. 
  • Interest will be credited to all the accounts (you and your child's) based on the savings done in each of those accounts. Since you are the guardian, you can claim a full tax deduction of Rs. 1.5 Lacs under Section 80C
  • Also, as per the rules of Clubbing of Income, the income generated by your minor child is taxed in your hands. However, since PPF gain is tax free, you are not liable to pay any taxes.
  • If you open a PPF account in the name of your spouse or a child (above 18 years of age), then you can deposit a total of Rs. 1.5 Lacs in each of the accounts separately and all such accounts would earn interest. Since you are not the guardian of an adult child's account or of your spouse's account, you will have no control over the money that exists in these accounts.

Also Remember
1) No individual can have two PPF accounts in their name at the same time. Doing so will invite a penalty. If the issuing authority (bank or post office) detects two accounts during the tenure of the scheme, you will get back only the principal you put into the account, sans any interest.
2) There have been reports from customers that they have opened multiple accounts and have also deposited up to a max limit of Rs. 1.5 Lacs in each account and are also earning interest. This is feasible, as long as the bank or post office is unable to detect this discrepancy. The moment the discrepancy is deducted, you are liable to return the additional interest along with penalty.

Government Circular
There is widespread unawareness on these points even among the banking or post office staff that you may deal with. To keep your money and interest safe, you may refer to the Government of India rules of PPF by accessing the below link:

So, play as per the rules with your PPF investments, to avoid disappointment later.


Manoj Arora
Lead a Financially Free Life !!

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