A joint bank account lets two or more individuals open a bank account together. This means all account holders can typically deposit and withdraw funds, Access account information through online banking or mobile banking, Issue cheques, or use debit cards (depending on the bank and account type).
Joint accounts are a convenient way for couples, families, or business partners to manage shared finances. They can simplify shared expenses and provide easier access to funds for everyone on the account. However, it's important to understand the tax implications and potential drawbacks of joint accounts before opening one.
Tax implications of interest on joint accounts
Here's how the tax implications of interest on joint accounts in India, covering tax liability, account holders, and TDS:
Tax Liability of Both Account Holders:
Interest earned on a joint bank account is taxable in the hands of both account holders.
This applies equally to both primary and secondary account holders, regardless of their contributions to the account.
The tax is divided equally between the account holders by default.
Primary vs. Secondary Account Holder:
The designation of primary and secondary account holders generally doesn't affect how the tax is calculated.
However, the bank might report the interest income on a tax document (TDS certificate) issued in the name of the primary account holder.
Both account holders are still responsible for reporting their share of the interest income on their individual tax returns.
Tax Deducted at Source (TDS) Rules on Interest Income:
Banks in India are required to deduct tax at source (TDS) on interest income exceeding Rs. 10,000 per year from a joint account.
This TDS is deducted from the total interest earned and credited to the account.
Both account holders can claim their share of the TDS deducted while filing their ITR (Income Tax Return).
Splitting tax burden on interest income (if applicable)
While the tax liability for interest earned on a joint account falls on both holders, there are options for splitting the burden:
Sharing Based on Contribution (Documented):
This method allows a more precise division of tax liability based on each person's contribution to the account.
However, documentation is required to prove the contribution ratio. This could include:
Deposit slips with details of who contributed what amount.
Statements from other accounts showing transfers into the joint account.
A written agreement between account holders outlining the contribution ratio.
Equal Sharing (Default):
This is the simpler option and applies if there's no documented proof of contribution.
The interest income and any associated tax liability are split equally between both account holders, regardless of their actual contributions.
Choosing the Right Method:
If you have clear records of contribution, consider the documented approach for a more accurate tax split.
If documentation is lacking, the equal sharing method is the default and simpler option.
Remember: Both account holders are ultimately responsible for reporting their share of the interest income on their tax returns, regardless of the chosen splitting method.
Important Deductions to Consider
To help reduce your tax burden on the interest income earned from your joint bank account, you can claim deductions under two relevant sections of the Income Tax Act:
Section 80TTA: Deduction for Savings Account Interest
This section allows an individual or HUF (Hindu Undivided Family) to deduct up to ₹10,000 per financial year on the interest earned from savings accounts held with banks, cooperative societies, or post offices.
It's important to note that this deduction applies only to the interest income, not the principal amount deposited.
This deduction is available to both account holders in a joint savings account, but the combined deduction cannot exceed ₹10,000.
Section 80TTB: Deduction for Senior Citizen's Savings Account Interest
This section offers a tax exemption on interest income earned up to ₹50,000 per financial year for resident senior citizens (aged 60 years or above).
It applies specifically to interest earned from savings accounts held with banks, cooperative societies, or post offices.
If only one account holder in a joint account is a senior citizen, they can claim the deduction under Section 80TTB on their share of the interest income, subject to the ₹50,000 limit.
Maximizing Deductions:
If both account holders are eligible, they can each claim their individual deduction under the relevant section (80TTA or 80TTB).
Remember to consider the total interest earned in the joint account and split it according to your chosen method (equal or documented contribution) before applying the deductions.
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