Investing in the Public Provident Fund (PPF) has long been a popular choice for Indians due to its attractive interest rates and tax-saving advantages.
This government-backed scheme falls under the EEE category, ensuring tax exemption on investments, interest earned, and maturity amounts.
Now, an ingenious trick opens up the possibility of doubling one’s investment and interest gains in PPF. Let’s explore this opportunity in detail.
Doubling Investment in PPF
Under section 80C of the income tax, individuals can claim tax exemption on PPF investments up to Rs 1.5 lakh.
The maximum annual investment limit in PPF is also set at Rs 1.5 lakh, allowing 12 deposits in a year.
However, married investors can leverage an advantageous strategy to double their investment within a single financial year.
How it Works for Married Couples
Married individuals can open a PPF account in the name of their spouse. By doing so, they gain an additional investment avenue apart from their personal PPF account.
In effect, they can deposit Rs 1.5 lakh in their account and an additional Rs 1.5 lakh in their partner’s PPF account during the same financial year.
This clever move empowers them to receive distinct interest rates on both accounts.
Tax Exemption Benefits
Since PPF investments fall under the EEE category, the investor can claim tax exemption on one of the accounts, up to Rs 1.5 lakh.
This effectively raises the PPF investment limit to Rs 3 lakh, allowing the couple to enjoy double interest on their contributions.
Furthermore, the interest and maturity amounts from both accounts remain entirely tax-free.
No Impact of Clubbing Provisions
In usual cases, income from gifts or amounts given to one’s spouse is clubbed with the individual’s income under section 64 of the Income Tax Act.
However, in the context of PPF, which enjoys complete tax exemption under the EEE category, these clubbing provisions do not apply.
A Smart Strategy for Married Couples
While the PPF account under the spouse’s name accumulates interest over time, the income from the original investment made by the individual does not get added to their annual income.
This strategy empowers married couples to seize the opportunity to double their contributions to the PPF account, reaping the benefits of compounding interest.
With the PPF interest rate for the April-June quarter set at 7.1 per cent, this simple yet effective trick presents an enticing prospect for married couples looking to make the most of their investments and secure a financially sound future.