PPF rule change from Oct 1: These accounts for minors can invite penalty. Do you have any?

The Department of Economic Affairs, Ministry of Finance, has issued guidelines for the regularisation of irregularly opened accounts under various National Small Savings Schemes through Post Offices. The circular outlines the procedures for processing these cases and clarifies the treatment of interest and maturity periods for such accounts. Reforms will be implemented commencing October 1, 2024.

One of the key points highlighted in the guidelines is the treatment of the Public Provident Fund (PPF) opened under the name of a minor.

According to the circular, Post Office Savings Accounts (POSAs) interest will continue to be paid on these irregular accounts until the minor reaches the age of 18, at which point they become eligible to open a regular account. Once the individual turns 18, the applicable interest rate will be applied.

Moreover, the maturity period for such accounts will be calculated from the date the minor becomes an adult. This means that the time period for which the account has been active will be considered from the date the individual is eligible to open a regular account.

Now what does irregular accounts mean? Saraswathi Kasturirangan, Partner at Deloitte India, says that PPF accounts can be opened for minors. However, only Indian residents are eligible to open PPF accounts. Further, PPF accounts for minors can be opened and managed only by either of the parents or by one of the legal guardians.

"Where PPF accounts were opened without following these guidelines, (example both parents opening in the name of one minor child etc) such accounts have been classified as irregular accounts. While a regular account will earn interest at the notified rate (presently 7.1%), accounts classified as irregular accounts (as mentioned above) would earn interest at the same rate of interest as post office savings accounts earn, until the minor attains the age of majority. Once the account holder attains majority, the maturity period will be calculated from such date and the applicable rate of interest will accrue," said Kasturirangan.

This is a move to ensure that these schemes and accounts are regulated and to deter opening accounts which do not conform to the guidelines. Investors would need to ensure that they are compliant with the scheme guidelines.
 
The guidelines aim to provide clarity and ensure a fair and consistent approach to the regularisation of irregularly opened small savings accounts.