In India, 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 financial contributions to the account. By default, the tax is divided equally between the account holders.
Understanding Tax Liability on Joint Account Interest
When a joint bank account generates interest income, it is generally presumed that each account holder has an equal share in that income for taxation purposes. This presumption holds true even if one account holder has contributed the majority or the entirety of the funds to the account.
- Equal Division by Default: For a joint account with two holders, if the annual interest earned is ₹20,000, each account holder is typically considered to have earned ₹10,000 for tax calculation.
- Irrespective of Contribution: The tax liability is not solely based on who funded the account. The primary and secondary account holders are equally responsible for declaring their share of the interest income.
- Individual Reporting: Each joint account holder must declare their respective share of the interest income in their individual Income Tax Return (ITR) under the head "Income from Other Sources."
Practical Scenarios and Implications
Consider these common situations:
- Joint Account of Spouses: If a husband and wife hold a joint account, the interest income will be equally divided between them by default for tax purposes. Each will report their share in their individual ITR.
- Joint Account with Minor Child: If a parent holds a joint account with a minor child, and the funds are exclusively contributed by the parent, the interest income might be clubbed with the parent's income as per the clubbing provisions of the Income Tax Act, despite the joint account structure. However, if the child is a major, the equal division rule typically applies.
Overview of Joint Account Interest Taxability
| Aspect | Description |
|---|---|
| Taxable Entities | Both the primary and secondary account holders are liable to pay tax on the interest earned. |
| Income Division | By default, the interest income is considered to be divided equally among all joint account holders. |
| Contribution Basis | The equal division principle applies irrespective of the actual financial contribution made by each account holder to the account balance. |
| Reporting | Each joint account holder must declare their calculated share of the interest income in their individual Income Tax Return (ITR) under the head 'Income from Other Sources'. If the beneficial ownership is not equal, they may need to specifically declare their actual share during ITR filing, provided they have supporting evidence, though the default assumption by the bank and for initial assessment remains equal. |
Tax Deducted at Source (TDS) and Form 15G/15H
Banks typically deduct Tax Deducted at Source (TDS) on interest income from savings accounts or fixed deposits if it exceeds specific thresholds (e.g., ₹40,000 for non-senior citizens and ₹50,000 for senior citizens in a financial year).
- PAN Linkage: It is crucial for both account holders to have their Permanent Account Numbers (PANs) linked to the joint account to ensure proper TDS attribution.
- TDS Certificate (Form 16A): While the TDS certificate might primarily be issued in the name of the first account holder, the interest income and corresponding TDS credit should be split and claimed by all joint holders in their respective ITRs based on their proportionate share.
- Submitting Form 15G/15H: To avoid TDS on interest income, eligible individuals whose total income falls below the taxable limit can submit Form 15G (for non-senior citizens) or Form 15H (for senior citizens) to the bank. For joint accounts, if one account holder's income is below the taxable threshold, they should submit the form. If both are eligible, both may need to submit.
For further information on income tax rules in India, you can consult official government resources or reputable tax advisory platforms.
