Double PPF investment and save tax

The exemption under section 80C on PPF investments stands at Rs.1.5 lakh. Investing in PPF is a good option for those who do not like to take risks and want to avoid market linked instruments like mutual funds,NPS etc.

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PPF is one of the secured investments that offer very good returns. PPF interest rate for the quarter Jan-March,2021 is 7.1%. These are the most popular debt instruments. Interest income earned on PPF investments and the maturity amount both are exempt from tax.

Since the maximum amount that one can invest is limited upto Rs.1.5 lakh, the advantage is capped. But there is another provision by which an individual can invest another amount of Rs.1.5 lakh in their partner/spouse’s account (subject to the maximum limit for investments altogether).Thus, those who are married can avail the tax benefit under this provision.

As per section 64 of the Income Tax Act, any income accruing to an individual’s spouse on the amount or assets gifted by that individual shall be added to his/her income. PPF falls in the EEE category meaning that the interest income earned and the maturity amount are all tax exempt. So the income generated from the PPF account of the spouse and the maturity amount both shall not be subjected to clubbing.

Contribution to the partner’s PPF is often resorted to when an individual himself/herself has used his/her own limits under section 80C. Though the limit of Rs.1.5 lakh is applicable in such cases too to earn tax free income. Married people can doubly benefit due to these provisions by investing more into PPF accounts.

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Krishna Rath is a SEBI Registered Investment Adviser, and since 2015 has been educating netizens on investments and insurance. Krishna is a fee only SEBI RIA and is Odisha's first SEBI RIA. With background in IT, Krishna is changing the advisory space with new innovations in AdvisoryTech.

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