Income tax deduction on deposit made in wife PPF account or ELSS funds

It is often asked by people who want to save some of their hard-earned money in the form of income tax deductions that can they claim a deduction if they deposit a sum in their wife’s (or spouse’s) Public Provident Fund (PPF) account. Or, in another scenario, are any kind of tax benefits if you invest in Equity Linked Savings Scheme (ELLS) in your spouse’s name?

Here are all your questions solved:

PPF Account:

IT deductions that come under Section 80 C given the option of a set of investments or expenses made. These options divide into two sets of items:

• Items for which you can IT deduction only if you have invested or has paid in your name (the taxpayer’s name)
• Items for which you can claim IT deduction no matter if you have invested or has paid in your spouse’s or children’s name

Source

Now, deposits made to your wife’s PPF account come under the first category of items, which means that you can contribute either to your, your spouse’s, or either children’s PPF account and can claim IT deduction later. Notably, even if your children are married and financially independent, you can still get IT deductions for depositing in their PPF accounts.

READ MORE: Transparent Taxation: PM Modi Launches India’s First Taxpayers’ Charter

 Equity Linked Savings Scheme Mutual Funds:

Now, let’s come to ELSS mutual funds. You can claim for IT deductions only when making the investment in your name only. In simpler terms, you can invest in your spouse’s name in some ELSS mutual fund and can avail IT deductions.

It should be noted here that when you invest in your spouse’s name in some ELSS mutual fund, the tax department sees it merely as a gift. And there are no tax implications for such gifts.

Sources

According to Section 64 of the IT Act, the money or asset that your spouse gets from you, shall be added to your (the original taxpayer) income. Hence, your income plus the gifts sent by you to your spouse in the form of ELLS mutual funds will be taxed only it is generally taxed as per the rules of Section 112A of the IT Act.

Comparing this to PPF account deposit, the latter account is actually tax-free. Hence, there is no immediate tax implication of that.

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