Think your child’s PPF is a separate ₹1.5 lakh limit? Here’s what the Kerala HC says

Sound financial planning includes securing your child's future using a government-backed savings scheme, such as the public provident fund (PPF), which is offering 7.1% interest rate this quarter. Among the safest investment options in India, it can help with the big expenses in your child's future, be it health, marriage, education or other aspirations.

Opening a PPF account for minors: Here's how

You are allowed one PPF account per individual, 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.

• To open a PPF account, you will need to fill out and submit the application to your preferred bank or closest post office.
• The application 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.

• In order to convert the account from minor to major status once your child reaches 18 years of age, you must submit a revised application form with the necessary documents to the bank or post office.
• The original tenure of PPF accounts is 15 years, after which they can be extended in 5-year blocks indefinitely through continuation requests submitted to the bank or post office.

PPF investment limit for children: What do the rules state?

Investors sometimes misunderstand the investment limits when depositing amounts into their child's PPF account. While you may be confused that each parent can 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 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:

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.

What the Kerala HC order on PPF interest states…

According to the PPF rules on tax concessions, contributions paid out of the assessee’s taxable income of the current year or of previous year(s) into the PPF account(s) standing in the name of the assessee, his / her child (minor and major) and the spouse qualify for rebate under Section 80C of the Income Tax Act subject to the total limit of ₹1,50,000 in a year.

The Kerala High Court ruled in a case where a mother opened PPF accounts for her children in 1999 and continued making contributions to the accounts even after they turned 18, until 2005 and 2007, respectively, according to a report by The Economic Times.

The HC, in its judgement, said that deposits made by the mother after the children attained majority will be treated as deposits made by the parent and will exceed the total prescribed limit (her own account plus two children) as per the Rule mentioned above. As such, the court analysed account statements and said that the accrued interest in the minor accounts till the date of attaining majority ( ₹6,87,021) must be forfeited, the report added.

Experts told the paper that this ruling serves as a warning and precedent validating the forfeiture of excess interest from PPF accounts and defining the period of liability.