AMOUNT DEPOSITED IN THE PPF ACCOUNT OF WIFE: INCOME TAX IMPLICATION

AMOUNT DEPOSITED IN THE PPF ACCOUNT OF WIFE: INCOME TAX IMPLICATONS




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TAX IMPLICATION

Query 1]

I am 76 years of age and would have only the contributions to the PPF A/c as the category of investment eligible for Deductions U/c 80C, as the benefit of deduction on the Investments made in ELSS is proposed to be withdrawn from 1st April, 2012.  I wish to contribute Rs. 30,000/- to the PPF A/c of my Spouse to claim the full benefit of Rs. 1 Lacs U/s 80C. However, I need clarifications and guidance with regards to:

  1. Whether the contributions make to the PPF A/c of the Spouse will be treat as ‘Gift, and/or, attract the ‘Clubbing provisions’ as per the New Direct Tax Code, being introduce from 1st April, 2012?
  2. If the ‘Clubbing provisions’ are applicable, whether the Interest credit every year on such contributions, on ‘cumulative basis’, is to be added to my income, as ‘tax-free Income’, every year?
  3. Whether a written consent of the Spouse to the contributions make by me to her the PPF A/c is need, and is to be retain along with the ‘Original’ Pay-in-slip in my Income-Tax records, for future reference?
  4. Whether the Original Documents, referr above, are to be retain in the Income-Tax record of the Spouse and only the Copies are to be retain in my Income-Tax records?

I hope that you will guide me and the readers of the tax-talk, by publishing the reply in Hitavada, at an early date. [shatekar@rediffmail.com]

Opinion:

  1. If any individual decides to deposit amount in the PPF account of a spouse, the investment shall be eligible for deduction u/s 80C(2)(v) read with Section 80C(4) of the Income Tax Act-1961. Such contribution / deposit could either be treat by the depositor as Gift or as Loan. In either case, the clubbing provisions under section 64 of the present Income Tax Act-1961 applies in respect of deposit in the account of Spouse. However, there is nothing to worry about as the interest on PPF is exempt u/s 10 and no tax liability arises in the hands of the Depositor. On maturity of PPF account, if the amount is reinvest somewhere else by the name account holder, the clubbing provisions becomes applicable. The new propose Direct Tax Code also have incorporated the clubbing provision as is contain in the Income Tax Act-1961. Section 9 of the proposed Direct Tax code proposed to club the income of the spouse from the assets transferred without consideration in the hands of the transferal.
    The Good news: Government has recently increased the Annual Investment ceiling in PPF A/c to Rs. 1,00,000/- from the present limit of Rs. 70,000/- .
  2. Yes, the interest income on cumulative basis has to be clubb every year. And the same can be claime as exempt u/s 10.
  3. The written consent is not necessarily require as such. However, documentary evidence as to the payment should be kept to justify the deduction in the account of the Payer.
  4. The original documents should be kept in the records of the person paying & claiming the deductions.

Query 2]

I had purchased a flat in the year 2002 for Rs.6,00,000/- and I am selling it now (2011) for Rs.11,50,000/-. The Govt. ready reckoner value of the flat is Rs.24,00,000/-. What will be my tax liability? How capital gain will be calculate?  

[atulsonak@rediffmail.com]

Opinion:

  1. To be undisputable & as per the normal rule, the capital gain is required to be computed by taking the Government Ready reckoner valuation of Rs. 24 Lacs, even though the actual sale consideration is Rs. 11.50 Lacs. [Section 50C(1) of the Income Tax Act-1961].
  1. In your case, there is a vast difference between the actual sale consideration vis a vis Government Ready Reckoner Value. In such a case, U/s 50C(2), you can file your return of income by claiming the sale consideration as Rs. 11.50 Lacs as full value consideration. In such case, the Assessing Officer may refer the valuation to the Departmental Valuation Officer (DVO). If the value assessed by the DVO exceeds RS. 24 Lacs, capital gain would be require to be compute by taking the valuation of Rs. 24 Lacs. If however the valuation done by the Departmental Valuation Officer is lower than Rs. 24 Lacs, then the valuation shown by the DVO will be adopt. As sale consideration in place of actual sale consideration shown by the assessee in the sale deeds.
  2. In the absence of all the relevant information like date of purchase, purchase expenses etc, the amount of capital gain & tax thereon cannot be work out.

TAX IMPLICATION

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