PPF deposit limit is Rs 1.5 lakh a year

SC Vasudeva

My divorcee daughter, 40, has a public provident fund (PPF) account in her name and another PPF account in the name of her minor daughter. What is the combined limit of deposit for both accounts? — BK Bindal

According to provisions of the Public Provident Fund Scheme 1968, an individual may, on his/her behalf or on behalf of a minor of whom he/she is the guardian, subscribe to PPF, with any amount not less than Rs 500 and not more than Rs 1,50,000. In view thereof, the amount of deposit in a PPF account cannot exceed Rs 1,50,000. In your case, the combined limit of deposit is Rs 1,50,000 only, but not Rs 3,00,000.

In the Senior Citizen Savings Scheme, premature closure of the account is permissible after two years from its opening on a penal deduction of 1% of the deposit amount. If the deposit has attracted benefit under Section 80C, will the withdrawal amount be considered part of the taxable income (of the year of withdrawal)? In case, the deposit amount is Rs 4 lakh and benefit taken is of Rs 1 lakh under Section 80C, how it will be adjusted?  If the deposit is not part of the Section 80C basket, will it be out of the above preview. Can this account be transferred to a bank from a post office? — Vishwa Nath Bhatia

Section 80C (6A) of the Income Tax Act, 1961, provides if any amount, including interest earned thereon, is withdrawn by the assessee from his Senior Citizen Savings Scheme account before the expiry of the period of five years from the date of deposit, the amount so withdrawn shall be deemed to be the income of the assessee, of the previous year in which the amount is withdrawn and shall be liable to tax in the assessment year relevant to such previous year.  Strictly construed the entire amount of withdrawal can be brought to tax.  However, in my opinion, this cannot be the intent of the provisions as enacted and therefore only the amount which has been claimed as deduction under Section 80C should be taxable.  This interpretation should be valid considering the fact that the capital amount withdrawn from the bank cannot be brought to tax as income.  The amount of interest earned on the entire deposit is, in any case, taxable.

It is possible to transfer an account from one deposit office to another under Rule 11 of Senior Citizen Savings Scheme Rules 2004. The deposit office for this purpose means a post office in India doing savings bank work and authorised by the Director General Posts to open an account under the aforesaid rule or an office or branch of a banking company, or any other company or institution, authorised by the Central Government to receive subscriptions under the Public Provident Fund Scheme. 

a) My son is a Punjab Government employee. During the AY 2016-17, he has earned interest amounting to Rs 312 and Rs 8,000 towards recurring deposit and savings deposit, respectively, from the bank.  His total salary in the AY 2016-17 is Rs 4,70,000. Will these interests (earned) be clubbed with his total salary?

b) His department has already deducted required TDS from his salary. Bank No.1 has also deducted TDS at 10% without education cess + surcharge from his FDRs being interest above Rs 10,000.  Bank No. 2 has not deducted TDS from his FDRs because he has earned interest approximately Rs 7,900 during AY 2016-17. He will have to deposit ‘self assessment tax’ i.e. 3% towards education cess + surcharge in respect of Bank No. 1 and Rs 790 + education cess + surcharge for Bank No. 2 through a challan.

As he will deposit the tax after March 31, 2016,  whether panel interest fixed by the department have to be deposited now on 3% education cess + surcharge and on Rs 790 + Rs 814.  In case, the panel interest is required to be deposited, what is the rate of interest? — Ramesh Kumar

Your queries are replied hereunder:-

a) Only interest earned in a savings bank account will be deductible to the extent of Rs 10,000 from the total income for the purpose of computing the tax leviable thereon.  Interest on recurring deposits is not covered by Section 80TTA of the Act.

b) Your son would be liable to pay interest under Section 234C for deferment of instalments of advance tax and Section 234B for not making payment of advance tax instalments. Interest under Sections 234B and 234C is payable at 1% per month.  It may be added that part of a month would be considered as complete month for the purpose of the leviability of such interest.