Public Provident Fund (PPF) accounts have long been a popular savings tool in India, offering good returns and tax benefits. However, starting from October 1, 2024, significant changes to the rules have been introduced by the government. These new regulations will impact the interest rates on minors’ accounts, non-resident Indian (NRI) accounts, and even those who hold more than one PPF account.
Here’s a breakdown of the most crucial updates and how they might affect your savings.
No Full Interest for Minors’ PPF Accounts
Until now, parents or guardians who opened a PPF account in the name of their minor child were able to receive the full interest rate—currently 7.1%—on these accounts. However, under the new rules effective from October 1, the government has reduced the interest rate for minors’ accounts. If the PPF account is opened for a child under 18, it will now only earn interest at the rate of 4%, the same rate as the post office savings account, until the child turns 18.
Once the child reaches the age of 18, they will gain full control over the account. At that point, the interest rate on the account will revert to the standard PPF rate, which currently stands at 7.1%. This significant reduction in interest for minors has come as a blow to many investors who used PPF as a safe, long-term investment option for their children.
Maturity of Minor Accounts Adjusted
Another key change affects the maturity period of PPF accounts held by minors. Under the new guidelines, the maturity date of a minor’s account will be based on the child’s 18th birthday. This means the account will only mature once the minor becomes a legal adult.
Previously, the maturity date was calculated from the date the account was opened, but now the clock starts ticking once the child reaches 18. This new rule aims to give the child, once they are of legal age, full control over their savings and allow them to manage their funds independently.
Multiple PPF Accounts: New Rules for Interest Calculation
For those who hold multiple PPF accounts, the government has also made changes regarding how interest is calculated. Moving forward, you will only earn interest on one primary account—the one opened first. If you have additional accounts, they will be eligible for interest only if the total balance across all accounts is less than ₹1.5 lakh.
For example, if the total balance in your multiple accounts exceeds ₹1.5 lakh, no interest will be paid on the excess amount. In essence, the interest calculation will focus on the primary account, and any secondary account will only receive interest if the combined balance remains within the ₹1.5 lakh limit.
This new rule could affect those who have opened multiple PPF accounts to maximize their savings. It’s crucial to review your accounts and decide whether consolidating funds into one primary account might be a better option moving forward.
NRIs Face Stricter Guidelines for PPF Accounts
Non-resident Indians (NRIs) will also need to take note of the new changes. From now on, NRIs must clearly declare their citizenship status on Form H. If they fail to do so by September 30, 2024, they will no longer receive the standard PPF interest of 7.1% on their accounts. Instead, their accounts will earn interest at the much lower rate of 4%, which is equivalent to a post office savings account.
This new guideline emphasizes the need for NRIs to stay compliant with the documentation requirements. Those who haven’t updated their status must ensure their Form H is correctly filled out to avoid losing out on higher interest rates.
What You Need to Do
If you’re a PPF account holder, it’s important to take action based on the new rules. If you have an account for a minor, be prepared for the lower 4% interest rate until your child turns 18. For those holding multiple PPF accounts, consider consolidating your funds to avoid losing interest on balances above ₹1.5 lakh.
Lastly, NRIs should review their PPF accounts and make sure all necessary documentation is up to date to avoid earning lower interest. These changes may require you to rethink your PPF investment strategy, but staying informed and adapting to the new regulations will help you maximize your returns.
