New PPF Norms Bring Clarity To Treatment Of Minors And Multiple Accounts
Public Provident Fund, one of India's favourite tax-saving investments now has clarification regarding the treatment of interest on irregular accounts too.
Public Provident Fund, one of India's favorite tax saving investments now have more clarification regarding the treatment irregular accounts.
Fresh guidelines have been issued in a move to reduce the irregular accounts under the scheme and these norms will be effective from October 1. The guidelines address the interest that irregular accounts will recieve if not closed or merged with the primary account,
"This is a guidelines bring clarity on how money will be dealt with in case of irregular account," said Arnav Pandya, founder of Moneyeduschool.
When Does An Account Become Irregular?
The guidelines specifically addresses the treatment of interest given to irregular accounts. There are certain situations when an account becomes irregular according to norms.
"If you have more than one account to your name, then that is an irregular accounts," said Amol Joshi, founder of PlanRupee Investment Services.
When one deposit more than 1.5 lakhs across the individual and minor's account, then these accounts will also be considered irregular, he said.
There are also other scenarios where the account is labelled irregular.
"An account becomes irregular when the contribution does not go out each year. A minimum contribution needs to be made each year, and lot of people miss out on it," said Pandya.
Interest On Irregular Accounts
According to the guidelines, these irregular accounts or second accounts, will only be given interest according to the Post Office Saving Account rates which is 4.0% per annum. The POSA interest rates are much lower than the PPF interest rate which stands at 7.1% per annum.
As things stand, the deposit in both the individual's and the minors accounts put together should not exceed the applicable deposit limit of 1.5 lakh every year.
Excess deposits across accounts according to the new guidelines will now be refunded to the investor without any interest from Oct 1.
Minor's Irregular Accounts
Irregular accounts in the name of minors will now be given the interest rates according to POSA. These accounts will have this interest till the minor turns 18.
The maturity period for the interest will be calculated from the date they turn eligible. Then the minor is eligible for the interest according to the PPF interest rate in place.
"Sometimes when people change banks, they end up opening multiple minor accounts, which is also treated as irregular accounts," said Joshi.
These irregular accounts will be given 4% interest, till the minor is turns elligible.
"Especially for minor accounts, people might forget to make the yearly payment, making the account irregular," said Pandya.
Multiple Accounts
Existing rules say that if you have two accounts, there will be no interest for the second account. In the case where an individual has multiple accounts, the first account will earn interest according to the deposit limit.
The balance amount in the second account will need to be merged with the first. Then, the primary account will continue getting interest while the second account with whatever balance will get zero percent interest, if not merged.
"It's easy to get the account regularised again, a payment will regulaise it again," said Pandya. If you have two accounts, you need to have one primary and the second account needs to be merged into the main account, he said.
For Non Resident Indians
As for NRI's irregular PPF accounts, POSA rate of interest shall be given to the account holder. This will be for lndian citizen who became NRI during the currency of Account. The will be given interest till September 30 but will not be allowed extension.
