Minor's account to NRIs: New PPF changes from October 2024 decoded

New rules for dealing with irregular PPF accounts have been notified by the Department of Economic Affairs which will be applicable from 1st October 2024.

The updated PPF rules that came into effect from 1 October, 2024 aim to regularise small savings schemes. Whether you are managing a minor's PPF account, holding multiple PPF accounts, or an NRI with a PPF account, the new guidelines set by the finance ministry will affect how your account earns interest. 

1. PPF rule regarding minors 

If you’ve opened a PPF account for a minor, the interest rate will now align with the Post Office Savings Account (POSA) rate of 4% until the child turns 18. After they turn 18, the account will start earning the standard PPF interest rate, currently set at 7.1%.

he change in interest rates will influence the overall returns on the account during the minor’s growing years.

Additionally, the maturity period for these accounts will be calculated from the date the minor attains adulthood.

• For PPF accounts held by minors, irregular accounts will earn interest at the Post Office Savings Account (POSA) rate until the minor turns 10. 
•  After the minor turns 18, the standard PPF interest rate will apply.
• Only one PPF account can be opened in a minor’s name. 
• If multiple accounts are found, the primary account will continue to earn interest at the scheme rate, while the other account(s) will not earn any interest from the date of opening.

How are PPF accounts treated after a minor turns 18?

When a minor turns 18, their PPF account can be continued, and it will start earning interest at the prevailing PPF rate. The maturity period is calculated from the date the minor reaches adulthood.

2. Multiple Accounts: Individuals can now have only one PPF account and two SSY accounts. Excess accounts will be closed without interest.

If you have multiple PPF accounts, you must regularize them by selecting one primary account to continue. The primary account will continue earning interest at the prevailing scheme rate. The balance in the second account will be merged, but any excess beyond the yearly deposit limit will be refunded without interest. 

For individuals with multiple PPF accounts, only the primary account will earn interest. If you have a second PPF account, it will not accrue interest unless you merged it with the primary one before December 12, 2019. If merged, both accounts will follow the interest rate rules within the government’s prescribed limits.

• The primary account will continue to earn interest at the scheme rate as long as it remains within the yearly investment limit of Rs 1.5 lakh.
• If the total balance across all accounts stays below this limit, any excess balance in a secondary account will be consolidated into the primary account.
• However, if there is any remaining balance in the secondary account that exceeds this limit, it will be returned without earning any interest.
• Any additional accounts beyond the primary and secondary will not accrue interest at all.
• This change aims to discourage excessive account holdings while ensuring that investors can still benefit from their primary investments.

What should you do?
If you still hold a second PPF account, ensure it’s either merged or closed to avoid any loss in potential earnings.

3. After October 1, 2024, NRIs will no longer earn interest on their PPF accounts. Despite this, they can still maintain the account until its maturity.

Extension Restrictions: NRI investors cannot extend their PPF accounts beyond the initial 15-year period.

Interest Rate: After September 30, 2024, NRI accounts will earn interest at the POSA rate.

A PPF account becomes irregular for NRIs if the account holder extends the account beyond the initial 15-year period. After September 30, 2024, these extended accounts will no longer earn any interest.
 

Point to note: For NRIs with irregular accounts, the interest rate will be reduced to the Post Office Savings Account (POSA) rate until September 30, 2024. After this date, no interest will be paid on these accounts. For minors with irregular accounts, the POSA rate will apply until the account is regularized when the minor reaches adulthood. Such accounts will start the 15-year clock on the 18th birthday of the minor.