My sister who is no more had made me a nominee in her PPF account. What is the tax implication if I deposit the claim from her PPF a/c in an SB a/c which I hold jointly with my husband? 

Jaishree Roy

According to the Public Provident Fund (Amendment) Scheme, 2011, upon death of the primary holder, the balance available in the PPF account would be credited to the nominee’s account on production of all the requisite documents. Section 10(11) of the Income Tax Act exempts any payment from a provident fund to which the Provident Funds Act, 1925 applies or from any other provident fund set up by the Central Government and notified by it. 

Accordingly, the receipt from the PPF account would be tax-free in your hands. When the amount is further deposited in the joint SB a/c, the interest would generally be taxable in the hands of the primary account holder. However, if the account ownership is split equally or in a specified ratio between you and your husband, then the interest earned would be taxable based on the apportionment. 

Please note that the clubbing of income provisions would not be applicable for the PPF amount received as the same has not originated from your husband’s earnings.

The matured amount (inclusive of the premium paid) is taxable when the premium exceeds 10 per cent of the sum assured as per Sec 10 (10D). Is this applicable for policies like Bima Bachat/endowment policies, where one-time payment is made? An interpretation is that if the policy period is less than 10 years, the matured amount is taxable, that is, it is not exempt under 10(10D). TDS of 2 per cent is deducted because of which the maturity amount needs to be shown as income.

V Srikrishnan

 In our understanding, the introduction of the new provision will cover policies like Bima Bachat/endowment policies where one-time payment is made towards premium as these policies may not clear the test for tax exemption (that is, the capital sum assured will not be 10 times the premium). The tax authorities have put the onus to deduct tax at source on policies where maturity proceeds are taxable on the insurance companies.

 Hence, if there has been a 2 per cent TDS deduction, it could mean that the policy is not covered for tax exemption and hence the proceeds would need to be offered to tax. However, it would be advisable to check the applicability of the same with the insurer.  

I have opened PPF accounts for my dependents: wife and two minor children. Can I deposit up to 1.5 lakh against each of the dependent’s accounts or should it be a cumulative limit? What about deduction under 80C?

Animesh Sen

The maximum deduction available under Section 80C of the Income Tax Act would be ₹1.5 lakh. With respect to the contribution on behalf of minors, you could reach out to the banker to check on the permissibility.

The writer is Partner, Deloitte, Haskins and Sells LLP. Send your queries to taxtalk@thehindu.co.in