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Contribution to spouse's PPF is tax deductible

Parizaad Sirwalla | Updated on November 15, 2017

Long term capital gains are exempt from tax if the proceeds from sale of land are reinvested in a new residential house.

I have a PPF account in SBI, extended beyond 15 years and I propose to continue to subscribe to this account for income tax purposes. My wife, who is a pensioner had closed her PPF account few years back, but wants to contribute to PPF and save on taxes. Can both of us contribute in my PPF account and individually claim tax deduction under Sec 80 C of the Act to maximum allowed extent of Rs 1, 00,000 each i.e. totally Rs 2, 00,000 in a year ? Alternately, can she invest in the PPF account of my son, who is not in India right now ? This account was opened by him after he became a major. —Jagannathan



Under Section 80C of the Income tax Act, an individual is eligible to claim deduction from total income in respect of contributions to any PPF (belonging to self, husband, wife, any child) subject to an overall limit of Rs 1,00,000 for a Financial Year (FY).



Hence, the deduction could be claimed in respect of contributions made in his own PPF account or in the account of spouse or any child. Accordingly, your wife would be eligible to claim deduction in respect of contributions made by her in your PPF account.



Since, the Public Provident Fund Act prescribes an upper limit of Rs 1,00,000 for an account in a FY, total contributions made by you and your wife during the FY to your PPF account cannot exceed Rs 1,00,000. Therefore, in case, the current maximum limit prescribed under the PPF Act of Rs 1,00,000 for an account in a FY is not exhausted, even you could invest in your PPF account and separately claim deduction to the extent of your own contribution to your PPF account. Consequently, the aggregate deduction in respect of contributions made by you and your wife under Section 80C of the Act could not exceed Rs 1,00,000.



Alternatively, under Section 80C of the Act, your wife would also be eligible to claim deduction in respect of contributions made by her in her son's PPF account subject to overall limit of Rs 1,00,000.



I have a sum of Rs 7,00,000 as long term capital gains on the sale of an inherited piece of land. As I already own a residential house as on date of the sale of the above land, can I invest the proceeds in purchase of a house plot to avoid paying capital gains tax?



– M Srinivasan



The long term capital gains (LTCG) resulting from sale of plot could be claimed as exempt from tax if the proceeds from sale of land are reinvested in new residential house.



As informed by you, since you own only one residential house as on date of sale of land, you would be eligible to claim LTCG as exempt from tax under Section 54F of the Act, only in case you reinvest the entire sale proceeds in constructing new residential house on the plot.



Further, the construction of the house needs to be completed within three years from the date of sale of original capital asset i.e. in your case the land. Investing in a house plot by itself will not qualify for the exemption under Section 54F of the Act. You can also claim the exemption under Section 54F of the Act if you invest in new residential house within one year before or two years after the date of transfer of the land.



Where investment in new house would be less than the net consideration, the deduction from LTCG, should be prorated in the proportion of investment in the new residential house to the net sale consideration.



In case, you are unable to make the new investment either partly/entirely by the due date of filing your personal tax return, you could deposit the money in the “Capital Gain Account Scheme” (CG scheme) prior to the filing due date (i.e. 31 July), with a prescribed nationalised bank, to be able to claim this deduction.



The amount so deposited into CG Scheme should be utilised for constructing the new house within three years as mentioned earlier, else the deduction is revoked to that extent. Further, ensure that the new house constructed should not be sold within three years from date of construction, else the entire deduction gets revoked.



Alternatively, you could invest in specified Bonds issued by National Highways Authority of India or Rural Electrification Corporation Limited and claim deduction from LTCG under Section 54EC of the Act.



The investment should be made within six months from the date of transfer of the land, subject to cap of Rs 50,00,000 for a FY and prescribed conditions.

(The writer is Executive Director, Tax, KPMG.)

Mail your queries to > taxtalk@thehindu.co.in

Published on February 25, 2012

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