The government has introduced new guidelines regarding the treatment of Public Provident Fund (PPF) accounts and Sukanya Samriddhi Yojana (SSY) accounts opened in the name of minors. PPF and SSY are two popular small savings schemes valued by Indians to save for children till they become legal adults.
A] PPF Accounts for Minors
PPF is one of the most preferred long-term savings scheme favoured by Indians seeking a low-risk investment with guaranteed returns. The scheme promises tax benefits and a steady, risk-free return. Noticing many irregularities in PPF accounts that have been opened for children by their guardians, the Union Ministry of Finance released a circular on August 21, 2024, highlighting several scenarios where a PPF account will be deemed irregular.
According to the PPF guidelines, 2020, a parent is allowed to open one account on behalf of a minor in addition to their own PPF account. The parent must invest a minimum amount of Rs 500 or a maximum of Rs 1.5 lakh per year to keep these accounts operative.
Irregular Accounts: The government has noticed that parents have opened multiple accounts in the name of their children which is against the rules. Therefore, according to the new guidelines, once the guardian recognises one minor account as the main account, the other accounts in the name of the same minor will be deemed as ‘irregular’.
These irregular accounts (those not conforming to the latest rules), will earn Post Office Savings Account (POSA) interest rate (currently 4 per cent) until the minor turns 18. Once the minor reaches adulthood, the account will start earning the prevailing rate of interest on PPF (which is 7.1 per cent per annum, at present).
Maturity Period: The maturity period for such ‘irregular’ accounts will now be re-calculated from the date the minor turns 18. This means the typical 15-year PPF maturity period will be extended for these accounts based on the minor’s age.
B] SSY Accounts Opened by Grandparents
SSY is one of the most popular small-savings scheme available for the girl child. It can be opened for any girl below the age of 10. The account will remain active till the girl child turns 18.
SSY currently provides a rate of interest of 8.2 per cent per annum. The maximum deposit in a financial year is capped at Rs 1.5 Lakh. The minimum deposit limit is Rs 250, and subsequent deposits are to be made in multiples of Rs 50.
Noticing that many SSY accounts have been opened by grandparents, the government in its latest guidelines has called this an ‘irregularity’. According to new rules, only legal guardians or parents can open SSY accounts for their girl child.
The guardianship of any existing ‘irregular accounts’ will now be transferred to the girl’s legal or natural guardians. Under the rules, one can open only open one SSY account per girl child and a maximum of two such accounts in a family unless the family has twins or triplets. So, additional accounts other than the two allowed under the scheme will be closed.
Small Savings Accounts for Minors (Other than PPF and SSY)
The latest rules state that accounts for minors (excluding PPF and SSY as mentioned above) will only earn a simple interest at the POSA rate (currently 4 per cent).
This specifically applies to irregular accounts that do not conform to the scheme’s rules to ensure that such accounts are streamlined in the future. So, and/or legal parents must regularise minor accounts they have opened for the children in the family so as to not incur any financial losses, while also getting the benefits attached to such schemes.
