The Public Provident Fund (PPF) remains a favored investment for Indians, offering risk-free returns backed by the government. With its tax-saving EEE (Exempt-Exempt-Exempt) status, PPF allows tax deductions on investments, tax-free interest, and tax-free maturity proceeds, with a current interest rate of 7.10%. However, new regulations, effective from October 1, 2024, aim to address issues concerning minors’ accounts, multiple PPF accounts, and accounts held by Non-Resident Indians (NRIs). Here’s what you should know about these updates and how they might impact your savings.
- Changes for PPF Accounts Held in Minors’ Names
The new rules stipulate specific interest rates and maturity conditions for PPF accounts opened for minors. Until a minor reaches 18, any irregular accounts will earn interest at the rate applicable to Post Office Savings Accounts (POSA). Once the minor reaches adulthood, they can open their own PPF account, at which point the standard PPF interest rate will apply. The account’s maturity will also be recalculated from the minor’s 18th birthday.
Additionally, irregular accounts arise when multiple guardians, such as parents and grandparents, open separate accounts for the same child or deposit beyond the allowable limit. Such irregular accounts for minors will earn POSA interest rather than the standard PPF rate.
- Rules for Individuals with Multiple PPF Accounts
Individuals are only allowed one PPF account per PAN. However, some people have opened multiple accounts through different banks or post offices. The updated rules state that individuals with more than one PPF account must designate a primary account. The second account’s balance will be merged with the primary one if the total remains within the yearly investment limit. If there’s an excess beyond the allowed limit, it will be refunded without interest. Only the primary account will earn the standard PPF rate; any additional accounts, beyond the primary and second accounts, will cease to earn any interest. - Updated Rules for NRIs Extending PPF Accounts
For NRIs, the rules surrounding PPF accounts have been clarified further. NRIs cannot open new PPF accounts. However, if an individual opened a PPF account while residing in India and later changed their status to NRI, they can continue contributing to the account until maturity. Beyond this period, NRIs are not permitted to extend the account and must close it. Additionally, any NRI who extended their PPF account without following regulations will see their account classified as irregular, with interest payments ceasing from September 30, 2024.
Final Notes
These updates, announced by the Ministry of Finance, are designed to streamline PPF regulations and prevent misuse, especially concerning multiple accounts and contributions for minors. While these changes mainly affect specific cases, it’s crucial for PPF account holders to ensure compliance to avoid penalties or reduced interest. If your account is in order, you can continue to enjoy tax-free returns and compounding benefits.
These regulatory changes reflect the government’s effort to maintain the integrity of the PPF system and ensure that this safe, tax-efficient investment option remains accessible and beneficial for everyone.