Joint Bank Accounts, Joint FDs and Joint Demat: Who Actually Pays the Tax in India (AY 2026-27)

There Is No Such Thing as "Joint Income" Under the Income Tax Act

Adding your spouse, parent or sibling as a joint holder on a bank account, fixed deposit or demat account is an operational convenience. It changes who can sign, who can withdraw, and who inherits the balance without a probate fight. It does not, by itself, change who pays tax on the income.

The Income Tax Act taxes income in the hands of the person who beneficially owns it - the person whose money generated it. Two names on a passbook do not create a 50:50 tax split unless both people actually contributed the funds.

This single principle resolves almost every joint-holding question, but it collides constantly with how banks report data. Banks deduct TDS and report interest against the first holder's PAN, which means the first holder's AIS often shows income that is not legally theirs. Reconciling the two is where most notices come from.

Joint Savings Accounts and Joint Fixed Deposits

The source-of-funds test

Ask one question: whose money is in the deposit?

The joint holder who put in nothing reports nothing. A common and expensive mistake is splitting the interest "because it is a joint account" when only one person funded it - the Assessing Officer will look at the bank credits, not the account title.

Worked example

Rakesh and his mother Sunita hold a joint FD of Rs 15,00,000 at 7.2%, earning Rs 1,08,000 of interest in FY 2025-26. Rakesh is the first holder, but Rs 10,00,000 came from Sunita's retirement corpus and Rs 5,00,000 from Rakesh.

• Sunita declares Rs 72,000 as income from other sources.
• Rakesh declares Rs 36,000.
• Sunita is 64, so she can claim the Rs 72,000 against her Section 80TTB deduction of Rs 50,000 if she files under the old regime, leaving Rs 22,000 taxable.
• Rakesh gets nothing under 80TTA, because 80TTA covers savings account interest only - never FD interest.

The problem: the bank will have deducted TDS on the full Rs 1,08,000 against Rakesh's PAN, and his AIS will show Rs 1,08,000.

Splitting the TDS Credit: Rule 37BA(2)

This is the provision most taxpayers have never heard of, and it exists precisely for this situation.

Section 199 says TDS credit goes to the person whose income was deducted from. Rule 37BA(2) allows the deductee to declare, in writing to the bank, that the income is assessable in another person's hands - and the bank must then report the TDS against that other person's PAN in its TDS return.

Practically:

1. Submit a declaration to the branch stating the name, address and PAN of the other holder and the proportion of income assessable in their hands.
2. The bank files its quarterly 26Q showing the split.
3. Both holders' Form 26AS then reflect proportionate TDS, and each can claim their share.

Do this before the quarter closes. Once the bank has filed, a correction statement is needed, and banks are slow about those.

If the declaration was never made and the TDS sits entirely in the first holder's 26AS, the ITR utility still lets you handle it: in the TDS schedule, report the TDS under the first holder's return but set the corresponding income offered to tax at the correct lower figure, and use the "TDS credit relating to self/other person" columns to attribute the balance. Expect a matching query if the paperwork does not support it, so keep the funding trail ready.

The Clubbing Trap With Spouses and Minors

Section 64 overrides the source-of-funds test whenever the funds themselves came as a gift from a close relative.

• Gift to spouse, then invested (Section 64(1)(iv)): you transfer Rs 15 lakh to your wife, she opens an FD in her name or as first holder jointly. The gift is tax-free under Section 56(2)(x), but the interest is clubbed back into your income, every year, indefinitely.
• Gift to son's wife (Section 64(1)(vi)): same treatment.
• Minor child as joint holder (Section 64(1A)): interest is clubbed with the parent having the higher income, with an exemption of only Rs 1,500 per child under Section 10(32).
• Gift to your own major child or your parents: no clubbing. Income belongs to them and is taxed at their slab. This is why routing surplus funds through a retired parent in the 0% or 5% bracket is legitimate planning, while doing the same through a non-earning spouse is not.

One nuance worth knowing: clubbing applies to the income from the gifted asset, not to income on the re-invested income. If the clubbed interest of Rs 1,08,000 is itself reinvested by your spouse, the second-generation income is hers. The mechanics are covered in more depth in our guide to clubbing of income under Section 64.

TDS Thresholds on Joint Deposits for FY 2025-26

Budget 2025 raised the Section 194A thresholds, and they apply per deductor, per first holder - not per joint holder.

Two points that catch people out on joint deposits:

• The first holder's age determines the threshold. A deposit funded by a 70-year-old but held with her son as first holder gets the Rs 50,000 threshold, not Rs 1,00,000. If the money is the senior citizen's, make the senior citizen the first holder.
• Form 15G/15H is valid only for the first holder, and only if that holder's total estimated income is below the taxable limit. A second holder cannot file 15H to stop TDS on a deposit where someone else is first.

Remember too that crossing the threshold triggers TDS, not taxability - interest below Rs 50,000 with no TDS deducted is still fully taxable and still appears in your AIS.

Joint Demat Accounts and Joint Mutual Fund Folios

Capital gains follow the same beneficial-ownership rule, but the reporting is blunter.

• The depository and the RTA report the entire transaction against the first holder's PAN. Your AIS will show the full sale consideration and the full gain.
• Dividends are credited to the first holder's bank account and reported against that PAN, with 10% TDS under Section 194 once dividends from a company cross Rs 10,000 in the year.
• There is no Rule 37BA-style declaration mechanism widely accepted by RTAs, so in practice the first holder of a demat account should be the person who owns the money.

A joint demat opened purely so a spouse can operate the account should be reported 100% in the funding holder's ITR - which means ITR-2 if there are capital gains. For jointly held mutual fund folios the same applies: redemption proceeds are paid to the first holder and Schedule 112A reporting follows that PAN.

Nominee Is Not Owner - and Never Has Been

A nominee receives the asset; a nominee does not own it. This distinction is settled law, reaffirmed by the Supreme Court in Shakti Yezdani v. Jayanand Jayant Salgaonkar (2023) in the context of shares: nomination under the Companies Act does not override succession law.

The tax consequences:

• Money received by a nominee on the death of the holder is not taxable as income in the nominee's hands - it is a transmission of a capital asset, not a transfer under Section 47.
• Income earned on that asset after the date of death is taxable to whoever inherits it under the will or succession law, which may not be the nominee.
• Income earned up to the date of death belongs in the deceased's final return, filed by the legal heir.

So a joint holder who is also the nominee still has to answer the ownership question before deciding what to put in their ITR.

Joint Property: A Different Rule Applies

Co-owned house property is governed by Section 26, not by the general beneficial-ownership principle. Where the shares are definite and ascertainable, each co-owner is assessed individually on their share of the annual value - they are not treated as an association of persons.

In practice this means rental income and the Section 24(b) interest deduction are split in the ownership ratio recorded in the sale deed, and each co-owner separately gets the Rs 2,00,000 interest cap and their own Section 80C principal deduction. The catch is that the ownership ratio must be backed by actual payment of consideration - a spouse named on the deed who contributed nothing cannot claim a share of the deduction.

One more joint-holding detail: on a five-year tax-saving fixed deposit held jointly, the Section 80C deduction is available only to the first holder, regardless of who funded it.

Fixing the AIS Mismatch Before It Becomes a Notice

If you are declaring less interest than your AIS shows because the rest belongs to a joint holder, do not simply file and hope. Use the AIS feedback facility and mark the relevant entry as "Income relates to other PAN", entering the joint holder's PAN and the amount. The feedback is recorded against the information and materially reduces the odds of an automated mismatch query under Section 143(1)(a).

49Tax's AI reads your AIS and Form 26AS alongside your Form 16 and flags exactly these mismatches - interest reported under your PAN that your declared income does not account for - before the return is filed, rather than after the department writes to you.

The Takeaway

Before you file, run every joint holding through three questions in order:

1. Whose money funded it? That person declares the income, in proportion to their contribution.
2. Did that money arrive as a gift from a spouse, daughter-in-law or parent-of-a-minor? If yes, Section 64 pulls the income back to the giver.
3. Does the TDS sit in the right PAN? If not, file the Rule 37BA(2) declaration with the bank now, so next year's 26AS is clean.

And one structural fix worth making this week: on any deposit funded by a senior citizen, make the senior citizen the first holder. That single change lifts the TDS threshold from Rs 50,000 to Rs 1,00,000, puts the Rs 50,000 Section 80TTB deduction in reach, and stops the interest from cluttering a younger holder's AIS.