The Public Provident Fund (PPF) is a popular and safe investment that gives assured and tax-free returns. At 7.1% tax-free, it offers higher returns than what other fixed income options give. The new rules for taxation of Provident Fund contributions above Rs 2.5 lakh in a year have made it eeen more attractive. But keep the annual limit in mind when you invest in the PPF. In a financial year, an individual can contribute only up to Rs 1.5 lakh to her PPF account. This cap includes both self and minor children’s accounts. If you open a PPF account in your child’s name, the combined contribution to both accounts must not exceed Rs 1.5 lakh in a financial year.While this limit is straightforward, some people invest more in the scheme. They either open multiple PPF accounts in their name or also invest in their minor children’s accounts. But while it might seem harmless, exceeding the Rs 1.5 lakh limit can become a problem later on.
PPF Investment Limit : Top Things to Keep in Mind
When you surpass the prescribed limit, the interest earned on the excess contributions may be subject to clawback. Whenever the discrepancy is discovered, any interest earned on the excess amount above the Rs 1.5 lakh limit would be taken back by the Post Office.The investor may be able to get away with it for several years, but when the discrepancy is finally noticed, it could result in a rude shock. Imagine if the discovery happens when the account matures. The investor will lose the interest on several lakhs of rupees for 15 years. In his attempt to invest in a tax-free instrument and save 30% tax on interest, he might end up losing 100% of the interest! In October 2024, the government clarified rules for irregular PPF accounts. Since all investments are now linked to the PAN of the individual, it is impossible to hide such accounts. All accounts other than the primary PPF account of the individual will be considered irregular and not earn interest. If excess investments have been made in a minor child’s PPF account, the investment will earn 4% Post Office Savings Account (POSA) interest till the minor turns 18 and the account becomes regularised.The PPF investment limit was last hiked in 2014, when the government increased the maximum annual contribution from Rs 1 lakh to Rs 1.5 lakh. A few years ago, the investment limit for the Senior Citizens Saving Scheme was hiked from Rs 15 lakh to Rs 30 lakh per individual, but the PPF limit has remained unchanged. Some investment experts say the limit should be hiked to at least Rs 3 lakh a year to encourage long-term savings and investment, especially for individuals seeking tax-free returns and retirement security.
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