The Tax Implications of Joint Bank Accounts

If the interest of a connected joint account and fixed deposit is more than Rs.10,000 per year, the primary account holder is subject to TDS. Joint account of two non-related persons is not accountable to deduction for withdrawals of up to Rs.50,000.

Joint accounts are basically regular bank accounts that are opened so that all the individuals who hold the account can enjoy equal benefits when it comes to deposits and withdrawals. However, joint accounts have a primary account holder and the other/s are considered as secondary account holders. The bank must be properly instructed about the primary and secondary holders so that they can be clearly identified.

Joint accounts offer several benefits. For instance, in case a married couple intends to buy an asset, like a house or a property together, the first step would be to start a joint account. Doing so will mean that the purchase deed of the house will have both names on it, and both, the husband as well as the wife can claim EMI deductions when filing their taxes. Another major benefit is that if one of the account holders passes away, the survivor shall automatically gain full control of the account and there will be no requirement of a legal document such as a will.

Limitations of Joint Accounts

Joint accounts do come with their share of limitations. For instance, while both account holders can withdraw money from the account, they cannot create bills of exchange or even overdraw. Therefore, joint accounts are great only when the account holders share utmost trust among each other.

Another major problem with joint accounts is that the kind of credit histories of each account holder will be different from the other. For instance, if the credit history of one account holder is poor, it will reflect badly even on the other account holder. All credit-funded expenses and transactions carried out via joint accounts should be repaid on time to avoid poor credit scores.

It is essential to exercise caution when selecting the primary/secondary account holder. In case your joint account and an FD from the same bank are inter-linked and the interest you earn on it is in excess of Rs.10,000 per year, TDS will be deducted by the bank in the primary account holder’s name. The secondary account holder will not have any deduction in his/her name.

In case two relatives open a joint account, and money is withdrawn by one of them, the amount withdrawn shall be regarded as a gift to the relative, and considering that gifts received from relatives is exempt from tax, the recipient will not be charged any tax. Even if joint accounts are opened by two people who are not related, like business partners, no tax will be applicable on withdrawals to the extent of Rs.50,000. But there will be tax on any amount in excess of Rs.50,000, and the person subject to tax will be the recipient of the amount.

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