Can You Claim Tax Benefits on Your Wife’s PPF or ELSS Investments Under Section 80C? Here’s What the Rules Say

Investments made under certain eligible categories allow individuals and Hindu Undivided Families (HUFs) to claim deductions under Section 80C of the Income Tax Act. While many tax-saving instruments are widely known—such as PPF accounts and ELSS mutual funds—the rules regarding who can claim the deduction can sometimes be confusing, especially when the investment is made in the name of a spouse. A common query among taxpayers is whether they can claim Section 80C benefits on contributions made to their wife’s PPF or ELSS funds. Tax experts clarify the rules to help investors avoid common mistakes.

PPF and ELSS: What’s Allowed Under Section 80C

Public Provident Fund (PPF) and Equity Linked Savings Schemes (ELSS) are among the most popular tax-saving instruments. While PPF offers guaranteed returns and tax-free interest, ELSS funds provide market-linked growth with a three-year lock-in period. A frequent question from taxpayers, such as the one raised by Rohit Jain from Faridabad, is whether a husband can claim a tax deduction for investments made in his wife’s name under these schemes.

According to tax expert CA Balwant Jain, the rules are clear but vary depending on the nature of the investment. Section 80C allows deductions on certain payments or contributions made for the taxpayer, their spouse or their children. However, there are specific instruments where deductions are restricted only to investments made in the taxpayer’s own name.

Investments Eligible for Deduction in Spouse’s Name

Jain explains that for certain categories of investments and expenditures, individuals and HUFs can claim Section 80C deductions even if the contributions are made in the name of a spouse or children. PPF falls under this category.

This means taxpayers can claim a deduction for contributions made to:

• Their own PPF account

• Their spouse’s PPF account

• Their children’s PPF accounts, including those who are married or financially independent

As long as the payment is made from the taxpayer’s income, the deduction can be claimed under Section 80C within the prescribed annual limit.

Where Deductions Are Not Allowed: ELSS Investments

While PPF contributions made in a spouse’s name qualify for tax benefits, ELSS investments have stricter rules. Jain clarifies that Section 80C allows tax deductions for ELSS only when the investment is made in the taxpayer’s own name.

Therefore:

• A taxpayer cannot claim deductions on ELSS investments purchased in the spouse’s name.

• Even if the taxpayer is listed as a second holder, the deduction cannot be claimed.

• Only ELSS units held in the taxpayer’s own name qualify for Section 80C benefits.

This distinction is crucial for taxpayers who intend to maximize their deductions through mutual fund investments.

Understanding Section 64: Clubbing of Income

Another important aspect taxpayers must consider is the clubbing provisions under Section 64 of the Income Tax Act. When an individual invests in their spouse’s name, that contribution is treated as a gift from the taxpayer. While gifts to a spouse are not taxable, any income generated from such investments is subject to clubbing rules.

Under these rules:

• Any income earned from the gifted amount is added to the taxpayer’s income.

• For PPF accounts, the interest earned is completely tax-free, so clubbing is not applicable during the accumulation phase.

• After maturity, if any income arises from reinvestment of PPF proceeds originally contributed by the taxpayer, it will be clubbed with their taxable income.

• For ELSS funds, capital gains earned upon redemption are taxable under Section 112A and will also be added to the taxpayer’s income.

What This Means for Taxpayers

The distinction between PPF and ELSS investments is important for anyone planning tax-saving strategies. While PPF contributions made in the spouse’s or children’s names are eligible for Section 80C deductions, ELSS investments require the taxpayer to hold the units in their own name to claim benefits.

Taxpayers must also remain aware of clubbing provisions, as income arising from spouse-related investments may ultimately affect their taxable income. Understanding these rules ensures compliance with tax laws while optimizing savings under Section 80C.

In summary, yes, you can claim deductions for contributions made to your wife’s or children’s PPF accounts, but you cannot claim Section 80C benefits for ELSS investments made in your spouse’s name. Proper planning and clarity on these rules can help taxpayers make informed investment decisions and avoid potential tax complications.