Section 80C of the Income Tax Act offers investors many options to earn tax exemptions that can help them save up to Rs 1.5 lakh annually under the Old Tax regime. Any investment made in tax savings options such as Public Provident Fund (PPF), ELSS, National Pension Scheme (NPS), Sukanya Samriddhi Yojana (SSY), National Savings Certificate (NSC) and Senior Citizen Savings Scheme (SCSS) allows to take tax benefits.
One of the confusions among taxpayers remains is what if an investment is made in the name of spouse or children in PPF, ELSS or any other tax savings options.
Are they still eligible to get tax exemption under Section 80C of the Income Tax act?
Balwant Jain, tax expert, told Moneycontrol that a taxpayer can claim a deduction under Section
80C for contributions made to your own Public Provident Fund (PPF) account, or to the PPF accounts of your spouse or children. Even taxpayers can claim for the investment made in the name of minors or children if they are married or financially independent, he added.
However, ELSS doesn’t provide this option. Taxpayers can’t claim a deduction for the investments made in Equity Linked Savings Schemes in the spouse’s name. Despite a second holder, you cannot claim the tax benefit for ELSS units purchase in your wife’s name, he added.
The interesting part of making investment to your wife’s or children’s name is that it is being treated as a gift. While one doesn’t have to pay any tax while gifting money or asset to spouse or children, however, capital gains and interest arising from gift are taxable.
Due to clubbing provision under Section 64 of the Income Tax act, the one gifted the money or asset will have to pay the taxes arising from capital gains or interests from the gift.
While a PPF account is fully-taxable, so clubbing provisions won’t have an impact. However, Balwant added, that when the PPF matures, any income attributable to the contributions made by you will need to be included in your taxable income year after year.
For ELSS investments, the capital gains on redemption must be included in your income and taxed under Section 112A, he added.
Disclaimer: The views and investment tips by experts in this News18.com report are their own and not those of the website or its management. Users are advised to check with certified experts before taking any investment decisions.
