A recent conversation with a Client made me realise that many are not aware of PPF rules. Read on further:
Client: Want to invest Rs.1.5 lakh each in my twin children’s PPF accounts with me & my wife as guardians for each child.
Me: Let me clarify that the maximum combined contribution that you can deposit in your and your child’s PPF account cannot exceed Rs.1.5 lakh in any financial year. So, you cannot deposit Rs.1.5 lakh in your account and another Rs.1.5 lakh in your child’s account of whom you are the guardian.
Client: Mere CA ne bola chalta hai!
After showing him the rules on post office website
Client: Mere CA ne bola koi problem nahi aayega!
Me: Problem nahi aayega dosent mean it is legal. Otherwise, everyone will invest maximum amount in the name of their minor children to earn 7 per cent tax free interest on PPF. Bank employees may not bother to check how much you are depositing in your account and your child’s account. But if this anomaly comes to light, you will be asked by the bank to refund the interest on the excess contribution done in all the years. Think about the compounding loss and the Rs.1.5 lakh you could have invested in other legitimate options.
Client: Ok, I would prefer not to get into unnecessary trouble in the future.
Bottomline – Do not go for shortcuts to chase money. Educate yourself on personal finance. Know the rules on financial products. When it comes to post office schemes especially, do not take bank employees statement (read PSUs) at face value. Majority are not aware of the rules. They even ask you to close your PPF account after completion of 15 years, whereas PPF can be extended thereafter indefinitely for a block of 5 years.
PS: This post is not about CA vs Financial Adviser, no intent to show CAs in bad light.