You can double your PPF income and save tax. Here's how
As per Section 64 of the Income Tax Act, any income that accrues to your partner on the amount or assets gifted by you shall be added to an individual's income. However, clubbing is not applicable to PPF
New Delhi: Public Provident Fund (PPF) is among the popular debt investment instruments. Not only does it offer decent returns, but it also highly tax-efficient, coming in the 'EEE' category meaning investment or contribution of up to Rs 1.5 lakh in a year, interest income earned on the interest and the maturity amount are all tax-exempt.
Note that while PPF offers decent returns, one can invest only Rs 1.5 lakh in a year. If the person wishes to increase their contribution to the PPF income and also get tax benefit, then married people have that advantage as they can invest another Rs. 1.5 lakh in their partner's PPF account. Remember that an individual cannot invest over Rs 1.5 lakh in a year in their own PPF account.
As per Section 64 of the Income Tax Act, any income that accrues to your partner on the amount or assets gifted by you shall be added to an individual's income. However, in the case of PPF, which is completely tax-free due to EEE, the clubbing provision shall not result in any implications.
Nonetheless, when the maturity proceeds of your partner's PPF account as and when received in the future, the income accruing in relation to your initial investment into their PPF account shall be added in your income year after year. So, this option gives a married person an opportunity to double their contribution to the PPF account in a way.
This is advisable in case for a particular year you have exhausted your 80C limit and wish to earn interest-free income. In this situation one can consider opening PPF account for their spouse.
It is worth remembering that the overall income tax exemption under Section 80c on investments will continue to remain capped at Rs 1.5 lakh per annum. The option can be a good choice for those who have low-risk appetite and do not want to invest in market-linked instruments such as NPS, mutual funds among others. PPF interest rate 2021 (Jan-March) quarter is 7.1%.