Public Provident Fund (PPF) is undoubtedly one of the best long-term savings schemes for Indian citizens. Apart from high rate of returns, the key feature that makes it attractive is its EEE status – which means there is a tax break on the contribution, the interest is tax-exempt, and the amount withdrawn is also tax-exempt. Still, that one thing that sometimes holds back certain investors from putting in money in PPF is the 15-year lock-in period. This Children’s day, we advise you to be wiser and open a PPF account early for your kid, so that you find your way around this small ‘Lock-in’ hurdle.
A PPF account comes with a lock-in period of 15 years from the end of the financial year in which the account was opened. Partial withdrawal is allowed but only from the 7th year onwards, subject to certain terms and conditions. So, for instance, if your kid starts his/her PPF account at the age of 25 once he/she starts earning, he/she can only make complete withdrawals after turning 40.
But, if you open a PPF account for your child at an early stage, say in the first five years of his/her life, then by the time he/she is an adult, the account would have matured or be closer to maturity. In that case, the benefit is that your child can use his/her PPF account with a shorter lock-in period compared with the normal lock-in of 15 years.
According to PPF rules, once the minor in whose name the PPF account was initially opened becomes a major, i.e., turns 18 years of age, the operation of account has to be handled by him/her. After that, whenever the account completes its mandatory lock-in period of 15 years, he/she can decide whether to close the account or extend it.
The PPF account can be extended with or without making any contribution. As per extension rules, the account can be extended any number of times, but by a block of five years each.
Now, after the PPF account matures, if your kid wants to continue with the existing account without making any new contribution, then he/she can withdraw any amount as limited by the balance available in the account. Plus, he/she will earn tax-free interest on the available balance.
Meanwhile, the account can also be extended with fresh contribution. These fresh deposits will be eligible for tax benefit under section 80C of the Income Tax Act. To remind, contributions made to PPF account enjoy deduction of up to Rs 1.5 lakh each financial year. Also, in the extension years of a PPF account, the account holder has an option to withdraw money once in a financial year. The withdrawal amount, however, cannot exceed 60% of the balance available at the start of the 5-year extension period.
So, visit a post office or a designated bank branch authorised to open PPF accounts now to secure your child’s future.
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