Income tax deduction on deposits made in wife's PPF account, ELSS mutual funds

-Kamal Joshi

By Balwant Jain, Cheif Editor, ApnaPaisa

Deductions under Section 80 C are available for certain investments made or expenses incurred by an Individual and an HUF. For certain items the deduction can be claimed only if the payment/investment has been done in the name of the taxpayer only whereas for some of the items deduction can be claimed even if expenditure is paid for or amount is invested in the name of self or children.

You can claim deduction under Section 80 C, for contributions made to your own Public Provident Fund (PPF) account or the PPF accounts of your spouse or your children. The amount can even be deposited in the PPF account of the children who are married or financially independent and not necessarily who are minor or financially dependent on you. However, there are certain items for which deduction can be claimed if the investment is made in the name of the tax payer only -- like Equity Linked Saving Scheme (ELSS). So you will not be able to claim the tax benefit in respect of investments made in ELSS on account of your wife even if you she is the first holder of the investment.

While investing money in the name of your wife, please note that the contribution to your wife’s account and investment in her name in ELSS shall be treated as gift from you, for which there is no immediate tax implication. However as per Section 64 of Income Tax Act, any income, which arises to your wife on the amount/asset gifted by you, shall be added to your income. Since the interest on PPF account is fully tax free, the clubbing provisions will not have any implications as of now. However when the maturity proceeds of her PPF account are received in future, the income arising in relation to the original amount of contribution made by you will have to be included in your income year after year.

In respect of ELSS investments the capital gains on redemption shall be included in your income and taxed as per the provisions of Section 112A.

(Views as expressed by the tax expert.)