Doubt regarding Clubbing of income in Wife PPF account

POSTED BY Jagoinvestor ON December 30, 2011 6:54 pm COMMENTS (13)

Hi

I have a doubt in PPF . One of the readers on our blog comments section said that he came across an article which said that one can open PPF account in your spouse name and invest Rs 70,000 per year. The return from spouse PPF investment will be clubbed with your income for taxation as per income tax laws for money gifted to spouse. As the return for PPF is tax free, the clubbed return does not impact or increase your taxation. This is a smart way to invest Rs 1.4 lakh per year, Rs 70,000 each into your and your spouse PPF accounts.

So the conclusion is that you invest in Wife PPF account and becuase the PPF returns are non taxable , even if it should be clubbed with your income , then also it will not be taxed .

Any idea on this or your thoughts ?

13 replies on this article “Doubt regarding Clubbing of income in Wife PPF account”

  1. Dear Vignesh, As of now DTC is merely Talk & no Walk. In all probability, DTC is going to miss it’s deadline of 1st April, 2012. An official announcement of this postponement ‘ll be done in the budget session of parliament.

    In the light of all this thing, i’ll ask you not to worry for DTC as of now.

    Thanks

    Ashal

    1. Pradeep says:

      Dear Ashal,

      I have one question, If I invested some amount in my PPF account and some amount in Wife’s PPF account, Is it allowed to show both in my tax returns?

      -Pradeep

      1. Dear Pradeep, you may invest in both PPF accounts & may claim the tax benefits also but the max. benefit ‘ll remain 1L Rs. of over all limit of section 80C.

        Practically you may invest 1L Rs. in each account i.e. 2L Rs. in total in both accounts.

        Thanks

        Ashal

        1. Pradeep says:

          Thanks Ashal…

  2. Dear ashal

    I am investing my father s earned money in mother s name(not earning memeber) in mutual funds. As of now the returns are tax free . but after dtc the returns from the equity will be taxed (after 1 yr holding) as long term capital gains. At that time the money invested ( in mother s name) will be taxed according to my father s slab?

    Am i right?

    Pls correct me if am wrong!

  3. Dear Manish, yes is the answer. If the income generated from the gifted amount is tax free in nature (PPF, NHAI & PFC tax free Bonds, Long Term Eq. holdings, Dividends from MFs as well as Eq.), the clubbing provisions of section 64 are not applicable at all.

    Thanks

    Ashal

  4. Thanks Ashal

    In that case for any investment product where the maturity value is tax free as per law ,like PPF , the recent NHAI bonds , ELSS etc , the investments done on some other person name can be done and there wont be any tax on that .. Many people will like this concept .

    Manish

  5. Abhishek says:

    Hi

    The same applies for investment in Equity which is kept for more than 1 year..

    Regards

  6. Dear Vignesh, yes is the answer. The 80C benefit ‘ll be available for only 1L Rs. out of those 4L Rs. invested in my example but the interest earned for all 4L Rs. ‘ll be tax free.

    Thanks

    Ashal

  7. VIGNESH BASKARAN says:

    Dear ashal ,

    only one basic doubt.

    1. Then you are conveying that above 1 lakh per year whatever he invests will not be given tax benifits(80c) but it also enjoys tax free returns.

    am i right?

    Regards
    Vignesh

  8. Dear Vignesh, No the PPF is an E-E-E instrument, hence the income from all such accounts (say 4 as per my example above), ‘ll remain tax free.

    Thanks

    Ashal

  9. Dear Manish, A person can open following PPF accounts.

    1. For self
    2. for spouse
    3. own dependent children
    4. For children who are under legal guardianship of the person.

    Depending upon the size of the family, this an average Indian family (We 2 our 2, Hum do humare do), can have 4 PPF accounts.

    he primary person can invest 1L Rs. in each of these 4 accounts & thus over all 4L Rs. but the basic tax benefit ‘ll be limited to 1L Rs. under the section 80C.

    As the income from PPF is tax free as on date, hence for a person investing own money in the name of non earning spouse or minor children, the clubbing provisions of section 64 ‘ll not apply

    Thanks

    Ashal

  10. VIGNESH BASKARAN says:

    Hi Manish

    I think one can have ppf account in children or spouse name but totally for a financial year 1 lakh exemption is allowed to invest under 80 c. if they invest more than the amount the returns(interest on the excess amount after 1 lakh) will be taxable.

    pls correct if I am wrong.

    Regards
    Vignesh

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