The Hindu Business Line : The unguarded deposit gate

THE Public Provident Fund Act as well as the scheme made thereunder (PPF regime) permits an individual to subscribe to a PPF account on his/her own behalf or on behalf of a minor of whom he/she is the guardian. This then precludes subscription on behalf of one's spouse or for that matter anyone else. The only exception brooked is subscription on behalf of a Hindu undivided family (HUF) and association of persons or body of individuals of which the individual is a member.

The Income-tax Act, 1961, on the other hand, contemplates a situation where an individual can deposit into a PPF account standing in the name of the individual, his/her spouse or any child of such individual in order to be eligible for deduction of the amount so invested in terms of Section 80C thereof.

Does the I-T Act then run counter to the express mandate of the PPF regime? The regime does not seem to contain any mechanism to prevent subscription in violation of its diktat. A bank manager would have no means of ensuring that the subscriptions into the PPF accounts under his custody are made only by the account-holders or their guardians in case of minor account-holders. In fact, under the extant banking norms, deposits into accounts are left unregulated with anyone free to deposit whatever he wants to, provided he knows the account number of the persons for whose benefit he wants to deposit. The PPF regime says that "any individual may, on his behalf or on behalf of a minor of whom he is the guardian, subscribe to the Public Provident Fund any amount not less than Rs 500 and not more than Rs 70,000 in a year."

Is the upper limit of Rs 70,000 for both the individual and the minor he is guardian of put together? From the language of the PPF provision, it appears the limit is for both of them put together.

The I-T Act itself does not put any ceiling in this regard except that it has placed an overall ceiling of Rs 1 lakh as being eligible for deduction from the gross total income under Section 80C.

Will it then be possible for an individual to contribute Rs 50,000 each to his own and his wife's PPF accounts and claim the entire amount of Rs 1 lakh as deduction from his gross total income assuming these are his only savings under Section 80C?

This would be within the limit of Rs 70,000 per account laid down by the PPF regime and may pass muster assuming the PPF authorities are not serious about enforcing their own code — one cannot invest on anyone else's behalf save minor.

The language of clause (v) of sub-section (2) of Section 80C, which reads as follows, may scuttle this ambitious claim:

"... contribution to any provident fund set up by the Central Government and notified by it in this behalf in the Official Gazette, where such contribution is to an account standing in the name of any person specified in sub-section (4)." As said earlier, sub-section (4) permits deposits into accounts standing in the name of self, spouse and children. But the use of the term `an account' suggests that an individual will get tax benefit only in respect of deposit into an account standing in the name of any one of the eligible persons.

In other words, if one has deposited into his own as well as into the account of his better-half, as in the case of the example in hand, the tax benefit is only in respect of contributions to either of the two accounts.

(The author is a Delhi-based chartered accountant.)