Public Provident Fund (PPF) scheme is one of the safest instruments that can be used by individuals or salaried employees who are looking at long-term options for tax-free earnings. To be precise, PPF is a long-term fixed investment scheme, which matures at the end of 15 years and offers an interest rate of 8 per cent.
In addition, there are a lot of other facilities that subscribers can enjoy under the scheme and experts recommend getting enrolled under the scheme as early as possible.Read more ↓
Having said that, individuals should note that PPF rules allow you to open an account for minors as well, as it would help amass a huge corpus that can be used for educational purposes or other activities.
1) The 15-year lock-in period in PPF accounts is one of the biggest reasons why one should open an account for minors at an early age. The interest is accumulated on the earnings during the tenure. So, if you are opening a PPF account for your child when he/she is 5 years old, the PPF account would return a lump-sum amount at the end of the tenue and can be used for either educational purposes or can be carried forward as well. It will help your child get a proper head start early in life. Elders who open a PPF account for their child should note that the amount does not exceed Rs 1.5 lakh in a financial year—the maximum amount that can be put into a single PPF account in a financial year while availing the tax exemptions under Section 80C.
2) Since PPF 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.
3) 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.
4) Having a PPF account at an early age will also create an urge among youngsters to save more during their first jobs—something which is very important in the present day. Besides, if he/she decided to extend more contributions to the PPF account after 15 years, the individual will continue to benefit under Section 80C of the Income Tax Act.
5) 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.