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PPF Account for Minor Child & Tax Benefit

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Many people have Public Provident Fund (PPF) accounts in their name as well as in their minor child’s name. However, holding such separate PPF accounts does not mean that you can deposit Rs 1.5 lakh in each and earn tax-free interest on both deposits. Here is why.

According to PPF rule number 3, “Any individual may, on his behalf or on behalf of a minor, of whom he is the guardian, subscribe to the Public Provident Fund any amount not less than Rs 500 and not more than Rs 1.5 lakh in a year.” What this means is that even though you can open two accounts, the total deposit in both the accounts cannot exceed the overall allowed maximum limit for a single person which is currently Rs 1.5 lakh in a financial year.

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 Grandmother, Grandfather, Uncle, Aunt etc.

One thing should be remembered 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.

Therefore opening PPF account in Post Office with being father as guardian and opening another account in bank with mother as guardian on the same child is not advisable. If at any point of time, it got noticed, then the account holder will loose the entire interest part on the another account.

Section 80C benefit for PPF for Self + Minor Child

Whatever the contribution a person does towards his/her own PPF and to the minor child contribution (where he//she is guardian) can be directly claimed for deduction U/s-80C subject to maximum limit up to Rs.1,50,000.

It should be noted that person may have one PPF account in his/ her name but may be a guardian for 4 kids PPF account, but the combined limit for tax deduction U/s 80C is only Rs.1,50,000 (regardless the number of kids or number of the accounts where the person is guardian).

Section 80C benefit for PPF for Self + Major Child

According to U/s 80C benefits, if a taxpayer invest in his/her major child PPF account, then he/she is also eligible to claim the tax benefits. But the source of such income must be from tax payer’s income. If the source of income of such investment is from taxpayer’s major child, then taxpayer is not eligible to claim the deduction U/s- 80C.

Here, the clubbing of the income rule is not applied. While computing the gross total income, if the income of any other person in a family is included, then its called Clubbing of Income. Section 64 of the Income Tax Act,1961 deals with clubbing of income. Hence, assume a person has invested in your major child PPF account, then any earning from this investment should be treated as major child’s income (even though PPF interest is tax-free and he has no tax liability) but not his/her (guardian) income.

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