Tax on Joint Account: Who has to pay tax on money deposited in a joint account? If you don’t know the rules, you may get trapped

Joint Bank Accounts Rule: Do you have a joint account in which you deposit money, but your name is second in the list of account holders? If you are an earner and your wife or parents are the primary holders, then this can become a big problem. Often the interest received on the amount deposited in the bank account i.e. TDS (Tax Deducted at Source) is reported in the name of the first holder, even if the money is earned by someone else.

Joint Bank Accounts Rule: In such a situation, even if your wife or parents do not have any source of income, tax can be reported in their name. Experts say that according to the Income Tax Act, income is considered to be of the person who has earned it. Therefore, it is important to correct such discrepancy immediately.

Who has to pay tax on money deposited in a joint account?

There are times when in a joint account, the interest on the fixed deposit (FD) deposited by the father is reflected in the son’s Annual Information Statement (AIS) even though the son has not made any contribution to it. This is a serious mistake and you need to take some steps to avoid it.

Firstly, you need to prove that the money deposited in the FD came from the father’s earnings. Second, the son should go to his AIS and mark this entry as ‘not fully correct – income is not taxable to me’ using the ‘feedback’ option. By taking such precautions, you can avoid any legal hassles in the future.

Also know the clubbing provision in joint accounts

If the husband transfers money to his wife’s personal account, and the wife uses that money to open an FD in a joint account with the husband, who will pay tax on the interest income from that FD?

In this situation, clubbing provisions apply. This means that even though the earnings are in the wife’s account, the husband will be responsible for paying tax. This rule applies to husband-wife, minor children and Hindu Undivided Families (HUF). However, if the joint account was of the husband and his brother, the brother would have to pay tax on his share of the income as the clubbing rule does not apply between siblings.

What should joint account holders do?

A joint account can be very beneficial, but it has to be handled carefully. If both you and your partner contribute money to the account, keep a clear record of the contributions. This is most important. If you have added someone’s name just for convenience, inform the bank immediately so that the income is reported only in the name of the actual earner. Such small precautions can save you from big tax-related problems in the future.

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