My wife’s PPF will mature in April. She wants to transfer ₹23 lakh to my senior citizen savings account and balance ₹7 lakh to our daughter. What will be the tax position implications for all of us?
As from April, interest will be earned in my name. I should and will be liable to pay tax. Please clarify in whose income interest will be added. – Chander Gupta
If you, your wife, and your daughter qualify as residents of India for tax purposes, and your daughter is not a minor (i.e., she is 18 years or older), the following tax implications apply to the receipt and transfer of PPF maturity proceeds:
Exemption on PPF maturity proceeds: The maturity proceeds from the Public Provident Fund (PPF), being solely funded by your wife, will be entirely exempt from tax in her hands.
Tax treatment of gift transfers: If your wife transfers the PPF maturity proceeds to you and your daughter as a gift, it will not attract any tax liability. Since gifts received from specified relatives (such as a spouse or parent) are exempt from taxation, the amounts received by both you and your daughter will not be taxable in your respective hands.
Taxation of interest on gifted funds:
For you: Any interest earned on the gifted funds will be subject to the clubbing provisions of the Income Tax Act. This means that the interest income generated from the funds gifted by your wife will be added to her income and taxed at her applicable tax rate. However, if you reinvest this interest to generate further income, such secondary income will be taxable in your hands.
For your daughter: Since she is not a minor, any interest income earned on the gifted funds will be taxable in her own hands and not subject to clubbing provisions.
I have paid an indemnity bond to my previous employer. Technically it’s not income and rather a profit for my employer. Will I get a tax exemption for it?
Based on the limited details provided in your query, it is assumed that you have made a payment towards an indemnity bond to your employer due to the non-fulfilment of certain pre-agreed employment terms that were part of your employment contract.
Under the income tax law, there is no specific provision allowing a deduction or exemption for payments made to an employer under an indemnity bond. Since such payments arise from the non-fulfilment of pre-agreed contractual obligations, they are generally treated as an application of income rather than a diversion of income by overriding title, making them ineligible for tax deduction.
However, courts have issued differing rulings on tax deductions related to recoveries such as signing bonuses and notice pay, depending on the specific facts of each case.
In the absence of a clear deduction or exemption under the Income Tax Act, there is a prevailing view that payments made under an indemnity bond due to the non-fulfilment of employment conditions are not deductible from taxable income.
It is advisable to carefully assess the specific terms of your agreement and the facts of your case before determining the tax treatment of such payments.
Parizad Sirwalla is partner and head, global mobility services, tax, KPMG in India.
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