FDR

Query 1]

I have following 2 queries regarding income tax payable on interest accrued on Joint FDRs

1. Whether independent members of Joint FDR Account Holders are liable for payment of Income Tax on the interest accrued on Joint FDR Accounts?

2. Whether independent members of Joint FDR Account Holders are liable for payment of Income Tax on the interest accrued on Joint FDR Accounts even after TDS is made? Looking forward to your response in the forthcoming Monday’s issue of the Hitavada. [Anurag Mishra- appmishra@gmail.com]

Opinion:

Safe, secured & highly liquid, Bank FD is one of the most preferred time tested investment options for the investors. There are lot many people who prefers to have a Fixed Deposits in Joint name. Behind stretching happiness to the joint holder, it also carries sense to do so because in case of unfortunate eventuality, the other holder automatically becomes the owner of the investment.

The surviving member need not go through the cumbersome process of additional documentation. However, there are number of issues arises about the TDS & taxability of income from such FDR. How about the tax treatment of interest income in case of joint FDR? Is it the first owner who is solely liable for tax? If not, what proportion of the income are all the joint owners liable for? There are doubts about the manner of deducting tax at source from interest income if deposits is in joint names. In respect of deposit in joint names, if there are also deposits in individual names with the same person responsible for deducting tax, should the interest on deposit(s) in joint names be aggregated with the interest on deposits in individual names?

 

In case of Joint FDR, it’s the beneficial owner who would be liable to pay the income tax in respect of interest income. For example, Mr. A & Mr. B have made a joint FDR of Rs. 5 Lacs on which interest of Rs. 50,000/- is paid annually. For taxability, it would be necessary to determine the person who has actually contributed & beneficially own the funds. If entire fund of Rs. 5 Lacs is contributed by Mr. A then entire interest would be taxable in the hands of Mr. A & nothing would be taxable in the hands of Mr. B. Similarly, if entire fund of Rs. 5 Lacs belonged Mr. B then entire interest would be treated as that of Mr. B & nothing would be added to the income of Mr. A towards joint FDR interest. If suppose, Rs. 2 Lacs (40%) in contributed by Mr. A & Rs. 3 Lacs (60%) is contributed by Mr. B, the interest of Rs. 20,000/- (40%) & Rs. 30,000/- (60%)would be treated as Income of Mr. A & B respectively.

Another vital issue is with regard to deduction of tax at source (TDS) in such cases. Section 194A (1) requires banks to deduct tax at source if the interest amount exceeds Rs. 10,000/- p.a.. The question arises as to (a) How to recognize the limit of Rs. 10,000/- in case one or both the joint owners also have individual FD (b) in whose name the TDS should be done (c) to whom the TDS certificate could be issued by the bank & (d) who can claim TDS credit.  In normal course, most of the banks deducts & shows TDS amount as that of first holder only. The issue has been dealt by the CBDT in its Circular No. 256 Dated 29/05/1979 which clarified the law of TDS in case of FD in joint name which in nutshell is as under:

1. The beneficial ownership of the FDR would be the basis for determining the TDS in case of Joint FDR.
2. How to recognize the limit of Rs. 10,000/-:
   In case of a deposit in joint names, say in two names, in the absence of any proof to the contrary, both the persons can be treated as payees for the purpose of deduction of tax under section 194A of the Act. As such, unless the person paying the interest on such deposit(s) has definite information about the beneficial ownership of the deposit(s), the interest payable under a joint account can be aggregated with the amount of interest payable by that person to any one of the payees in their separate or independent accounts. The persons responsible for deducting the tax are advised that, in the absence of any information to the contrary, they may aggregate the interest on a joint account with the interest on deposit in the individual’s account who has higher interest income.
   Thus, at an interest rate of 9% p.a. there is a deposit of Rs. 1 Lacs in a joint account of Mr. A & Mr. B and there are individual deposits of Rs. 5,000/- in the name of A & Rs. 25,000/- in the name of B, the payer may aggregate the interest of joint FDR of Rs. 5 Lacs with the other interest income of B & since the aggregate interest during a financial year exceeds Rs. 10,000/- the bank would be required to do TDS at the prescribed rate. The fact that the joint account may be styled as A & B instead of B & A will not make any difference.
3. The certificate of deduction of tax at source under section 203 of the Act will be given to the person in whose name the interest on joint account has been aggregated as mentioned above.
4. Credit for the payment of tax deducted at source will be given to the person in whose name the certificate under section 203 has been issued. If any objection is taken to the deduction of tax at source in the above manner or it is contended that the joint account holders constitute a separate person and no deduction of tax at source should be made, it will be up to them to point it out to the person paying the interest by leading evidence, i.e. by filing affidavits or statements in the manner laid down in the proviso to sub-section (1) of section 194A of the Act. The person paying the interest may act according to the affidavits or statements which the joint account holders may file before him in discharging his responsibilities under section 194A of the Act.
   In Short, it is advised to the joint holder of the FD to inform the banker by affidavit/statement or other evidences about the beneficial holding so that the TDS credit could be given to the person in whose account interest income is offered for taxation.

Query 2]

I am an Assistant Professor, with net payable income of Rs. 7,92,000/-. This year, I have received nomination of an incomplete housing board flat with paid amount of Rs. 12,00,000/- & remaining amount of Rs. 8,00,000/-. The same was transferred to me because of demise of my father and flat being transferred to my name. Do I need to pay tax for the incomplete flat received? How should I pay the tax? [Dr. Jitendra Sinha-

irapsugarcane@rediffmail.com]

Opinion:

No tax liability arises on inheritance of right in an uncompleted flat or Rs. 12 Lacs that might have been paid earlier by your father. Nothing is taxable on amount/property inherited by you after the demise of your father.